If you are looking to create generational wealth, or a nest egg that you can pass on to your kin, you need to focus on companies that have survived the tests of time. You should also pay close attention to dividends since they can provide a boost to returns and give you something to hold on to when markets inevitably get turbulent.
Realty Income (O +0.70%), Bank of Nova Scotia (BNS 1.25%), and Procter & Gamble (PG +0.23%) are all names that should be on your short list for creating a lasting fortune.
1. A leg up on its peers
Realty Income is a real estate investment trust (REIT) that owns single-tenant properties. Its tenants are responsible for most of the operating costs of the assets they occupy. This is known as a net lease in the industry. Any single property, with just one tenant, is high-risk. But over Realty Income's more than 11,000 locations, it is actually a pretty low-risk approach to owning real estate. Notably, the inflation that is spiking costs today is mostly affecting the REIT's tenants, which have to pay property operating costs.
NYSE: O
Key Data Points
Realty Income has a number of impressive statistics behind it. For example, it is a Dividend Aristocrat with over 25 consecutive years of annual dividend increases under its belt. The yield is a generous 4.4%. Although it's heavily focused on retail assets (78% of rents), it has exposure to non-retail properties (the remainder) and Europe (about 10% of rents) to add a little diversification.
And it has an investment grade rated balance sheet and is often afforded a premium valuation. That very last point may sound bad, but it gives Realty Income access to low cost capital and the ability to profitably grow its portfolio with deals that peers couldn't take on because of their smaller size and higher costs. Rarely cheap, Realty Income is a name for which it's probably worth paying full price.
2. Canada and beyond
Bank of Nova Scotia, or Scotiabank as some call it, is one of the largest banks in Canada. Canada has a highly regulated and very conservative banking industry, leaving a small number of banks with entrenched positions. Even though growth isn't material in Canada, it is highly unlikely that Scotiabank's is going to suddenly lose its place in its core market, which provides it with a solid foundational business. Many of the company's peers have used similarly strong core operations to push into the United States for growth, but Scotiabank has taken a different approach.
NYSE: BNS
Key Data Points
About half of the company's business is in Canada, and the rest falls into broader "global" buckets. While some of that is located in the United States, a far more significant portion is from Latin America. This positions Scotiabank in emerging markets that are expected to have higher growth rates over time. That's a good combination for long-term wealth building. Today Scotiabank offers a very generous 5.3% yield, and it has paid a dividend every year since 1833!
U.S. investors will have to pay Canadian taxes, and dividend payments will vary with exchange rates, but if you can see the long-term value of having some emerging market exposure in the mix, this is a high-yield bank you'll want to examine.
3. A Dividend King
Procter & Gamble is an iconic brand manager in the consumer staples space, with a collection of high-end labels that you almost certainly know well (like Bounty and Gillette). The company has long differentiated its products by spending heavily on research and development to ensure they offer premium benefits to justify their premium prices. Moreover, its giant scale means it has the resources to advertise heavily and support strong retailer relationships. It is one of the best-run companies in the staples sector. Investors know this and tend to afford it a premium price.
NYSE: PG
Key Data Points
Right now the yield is 2.6%, which is better than the broader market but not particularly high for Procter & Gamble. For value-conscious types, it might be best put onto the watch list in case there is a sell-off. That said, this is a stock that's worth the wait. Most notably, its long-term success is highlighted by the fact that it has increased its dividend annually for more than 50 consecutive years, making it a Dividend King. And with its entrenched industry position, that streak doesn't seem likely to end anytime soon.
What's notable is that Procter & Gamble, like its peers, is working through a period of elevated inflation. That could lead to a buying opportunity if investor sentiment turns negative.
Slow and steady dividend payers
If there's a theme across these three stocks, it is that they are all dividend-paying companies that have proven themselves through hard times. Realty Income is the youngest of the group, but it is a dominant name in the REIT space. Bank of Nova Scotia has used a conservative core business (Canadian banking) to expand into high-growth regions. And Procter & Gamble is an industry leader with iconic brands, backing an incredible streak of annual dividend increases. All three should at least be on your watch list, if not your buy list, today.
