Long-term investing can help you reach financial freedom, giving you the time to enjoy the things that make you most happy in life. But the idea of a "forever" stock can be challenging; look up the world's largest companies from 50 years ago and see how many you recognize today.
I've found that the companies that have proven to last tend to be profitable, sell a product that people buy repeatedly, and have a track record of success. These stocks are "wealth compounders" that keep delivering the longer you hold them.
They don't even have to cost a lot of money. You can find great stocks for less than $100 per share, meaning you can jump-start your journey to financial freedom for less than the cost of a night out on the town. Here are two great examples.
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1. Hormel Foods
Every time you go to the grocery store, there's a good chance you're filling your cart with products made by Hormel Foods (HRL 1.05%). The company is most famous for its canned meat brand Spam, but also offers various meat products, snacks, dips, salsas, nuts, and more.
It's not flashy, but the stock has returned a staggering 61,000% since going public back in the 1920s. It's a Dividend King that's raised its dividend payout for 55 years in a row. How does a company achieve this level of success?
Hormel's secret ultimately boils down to strong product brands and prudent management. The company's costs are sensitive to commodity prices on things like turkey and pork but it has steadily grown its free cash flow efficiency over time. Today the company is creating almost $0.07 of cash flow from every revenue dollar.
HRL Free Cash Flow data by YCharts
Hormel increases its dividend payout as its free cash flow grows; the dividend payout ratio is 67% of cash flow right now, leaving the company plenty of room to afford the dividend.
Management uses its leftover cash flow to carefully maintain a balance sheet that historically has carried little debt. Hormel will make acquisitions to help grow the business, including its most recent purchase of Planters for $3.35 billion in cash. The company identified Planters as a potential target back in 2016 but waited until 2020 to begin acting on a possible move.
The company will not knock your socks off with growth; revenue has increased just under 4% annually over the past decade. However, its steady improvement over a multi-decade time frame makes it a stock you can lock away in your portfolio and benefit from years into the future.
2. Brown-Forman
Alcohol is an industry almost as old as humankind itself, and Brown-Forman (BF.B 0.16%) makes Jack Daniel's whiskey, the most prominent American whiskey brand in the world. Liquor can be a very innovative consumer product category. Just look at how Brown-Forman has innovated the Jack Daniel's brand over time.
Today, Jack Daniel's whiskey has several variants, including apple and honey flavors and Jack Daniel's branded canned beverages like spiked lemonade. Brown-Forman has also slowly expanded its product portfolio to include bourbon, tequila, and other spirits. The stock has returned more than 32,000% over its lifetime and is a Dividend Aristocrat with 37 straight years of dividend growth.
Brown-Forman generates a ton of free cash flow; the business doesn't need a ton of investment outside of the facilities and equipment for its distilleries. The company gets more than $0.21 of cash flow out of every revenue dollar it makes.
BF.B Free Cash Flow data by YCharts
The dividend payout ratio is just 43% of cash flow. Management will occasionally issue a special dividend when the company has more cash than it needs. Special dividends are one-time payments; its most recent special dividend was in December when it paid shareholders an extra $1 per share.
Like Hormel Foods, Brown-Forman isn't a flashy stock; it's averaged 3% revenue growth over the past decade. However, it's a cash-producing machine, and when investors compound those dividends, the total returns can add up over a multi-year holding period. Companies like Hormel and Brown-Forman show that slow and steady can win the race when a product has strong brand power and management executes at a high level.
