Legendary investor Warren Buffett once famously said that his favorite holding period is "forever." He has amassed a multibillion-dollar net worth through an investing strategy designed around picking solid companies with great long-term prospects, and simply holding on for the ride. Who are we to argue with that success?
Best of all, that strategy is fairly straightforward to emulate, particularly for patient investors. With that in mind, three Motley Fool contributors dug through their own holdings to share stocks they plan to hold for the long haul. They picked Digital Realty Trust (DLR -0.57%), SoFi Technologies (SOFI 2.06%), and Kinder Morgan (KMI -0.27%). Read on to find out why, and decide for yourself whether one or more of them deserves a spot in your portfolio.
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Put some trust in this top REIT
Eric Volkman (Digital Realty Trust): My long-term hold is real estate investment trust (REIT) Digital Realty Trust. The company specializes exclusively in data centers, the big facilities that hold vast banks of computer servers.
Which is why I'm keeping the stock in my portfolio. Think of how digitized all our lives have become, and the mountains of code required to support this. That's an endlessly growing ecosystem, so a good data center REIT doesn't have to find business -- it comes of its own volition.
There's almost no chance that trend will fade or reverse. Tech companies are falling over themselves developing artificial intelligence (AI) capabilities, in an effort to catch some of the white-hot popularity enjoyed by AI app ChatGPT. To put it mildly, AI is a resource-intensive segment.
The REIT isn't the only data center renter on the scene, but it is one of the largest and most powerful, with over 310 facilities located in various regions around the world.
Being a sprawling global operator has its drawbacks, of course, and Digital Realty's performance has been dinged by volatility in foreign currency movements. Higher interest rates aren't helping greatly either; REITs depend on debt financing to fund their building and acquisition activities.
Yet Digital Realty's "capital recycling" strategy, in which it aims to raise funds through asset sales to finance future development and retire debt, seems to be motoring along. Earlier this month, it announced the divestment of one of its noncore data centers in Texas. That $150 million sale resulted in a capital gain of a cool $88 million or so. The company has more than a few such levers it can pull to cope with the challenges.
Meanwhile, its business continues to grow -- revenue in the first quarter alone blasted 19% higher year over year. Funds from operations (FFO, the most important profitability line item for REITs) had a more modest increase but still ticked up, rising by 4% to nearly $485 million.
Short-term catalyst, long-term opportunity
Jason Hall (SoFi Technologies): Despite the banking upheaval in March, 2023 has been very good to SoFi investors, with shares up almost 72% as of this writing. That kind of fast run might make some investors think about selling, but I think the best is yet to come for this company. To start, the mini-crisis that saw Signature Bank, Silicon Valley Bank, and First Republic Bank fail looks like it was potentially good for SoFi, which increased deposits 40% from the end of 2022 to $10 billion at the end of March 2023.
SoFi also just got really good news on what it could do with that extra cash, as federal student loan borrowers will have to begin making payments again, and at prior high interest rates. A large part of SoFi's business is refinancing federal student loan debt, and that business has been almost nonexistent for three years. This is a big boost to a really profitable part of its business.
But looking beyond this one narrow line of lending, SoFi has done a lot to expand its loan portfolio, including auto lending, mortgages, credit cards, and personal loans. And while lots of other banks have billions tied up in sub-3% mortgages, SoFi is unfettered by low-yield loans. That should allow it to compete profitably, and continue building the next great banking franchise.
Combine its increasing banking strength with a successful fintech payments platform in Galileo, and I'm happy to be in for the long haul as a SoFi shareholder.
Love it or hate it, there will be a need for its services for decades to come
Chuck Saletta (Kinder Morgan): According to the US Energy Information Administration, the use of natural gas to generate electricity was the highest ever this past winter. In addition, the same organization projects that total oil and natural gas demand will be around the same in 2050 as it was in 2022, even under optimistic green energy scenarios.
Oil and natural gas generally need to be moved from where they're produced to where they're needed for consumption or to get transformed as inputs for other materials. That's where Kinder Morgan comes in. It owns or operates somewhere in the neighborhood of 82,000 miles of pipelines that crisscross North America, which makes it critical to moving that energy around.
It's rare that a company can see such a strong reason to believe its services will still be in about the same level of demand decades from now. Of course, a projection of steady demand is hardly a major growth story, which is where Kinder Morgan's dividend comes into play.
The company currently pays a dividend of $0.2825 per share per quarter. At a recent market price of $17.23 per share, that works out to a yield of around 6.6%. That yield is well covered by its operating cash flow, and it has regularly increased its dividend annually since around 2018.
A decent and covered payment along with a modest dividend growth rate make Kinder Morgan worth consideration as a long-term holding. What makes me confident enough to actually plan on it is the fact that it continues to work on maintaining a healthy balance sheet even as it plans for that slower-growth future.
Having been burned by taking on too much debt in the past, Kinder Morgan has been self-funding its expansion and reducing its debt load since its previous financial position forced it to cut its dividend. Sure, it wasn't fun to be an investor through those challenging times. As long as the company retains the lessons lit learned from that experience and demand remains solid for its services, it's one that I can hold onto for the long haul.
The long term starts now
If there's a downside to investing with a long-term focus, it's that it takes a while to see the incredible benefits that come with the territory. Of course, the longer you put off starting, the farther away that date will get. So make today the day you start looking for long-term investments of your own.
