The average holding period for a stock has been falling for a long time and now sits at less than a year. Owning stocks for such brief period means investor sentiment is likely to be the biggest driver of performance.
But if you stretch out your holding period, you can start to benefit from the fundamentals of a business. If you can think in decades, perhaps even holding a stock "forever," you'll want to look at Enbridge (ENB -1.21%) and Steel Dynamics (STLD 0.76%) today as they build for the future.
1. Shifting with the times
Based out of Canada, Enbridge is one of the largest midstream energy companies in North America. It offers a very attractive dividend yield of 7.1%. The dividend has been increased annually for 28 consecutive years. At its core, Enbridge charges fees to companies that are moving oil and natural gas through its system of infrastructure assets.
Image source: Getty Images.
But that's today. The real question for a long-term investor is what's likely to happen tomorrow? There are some clues here. For example, oil pipelines account for about half of adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). This business line, however, is only slated to consume around 1% of the company's current capital investment budget.
By contrast, natural gas (combining pipelines and a natural gas utility operation), which is about 45% of EBITDA, is slated to receive around 80% of Enbridge's investment spending. Natural gas is expected to be a transition fuel as the world moves toward cleaner alternatives.
Finally, the company's relatively tiny clean energy segment, which makes up the rest of EBITDA (about 3%), will receive the remaining capital spending. Relatively speaking, clean energy's piece of the capital investment pie is going to be roughly 4 times the size of its current contribution to the portfolio.
Simply put, this is a high-yield energy stock that offers a reliable and growing dividend even while it changes with the world around it. Although near-term concerns -- like exchange rates and competitors opening new pipelines -- have put pressure on the stock, long-term investors are still likely to find it very attractive as it uses carbon energy profits to fuel its transition toward cleaner alternatives.
2. Adding a new platform
Steel Dynamics is one of the younger U.S. steel companies, tracing its history back to just 1993. However, it has grown very quickly to become one the industry's most important competitors. It has built its business on top of a portfolio of electric arc mini-mills, which are generally more flexible than older blast furnace technology. Essentially, it tends to be profitable through the entire cycle in what is a highly cyclical industry.
The proof of the company's success can be found in its dividend, which has increased annually for 13 years. But the real story is the dividend growth rate, which averaged more than 20% over the past decade! The push to continue building new steel mills and an effort to use its own steel to produce higher-margin steel products has been a big driver of the success here. These efforts are ongoing.
What's really interesting today is that Steel Dynamics believes the aluminum market is showing signs of an investment opportunity similar to what it has capitalized on in the steel market (namely, undersupply and increasing demand). So it is building an aluminum mill, adding another growth lever to its business. Although not open yet, it is on schedule to start up in mid-2025.
Steel Dynamics is rarely cheap, but with the shares down 20% or so since a March 2023 peak, now could be a good time to start building a long-term position in this fast-growing metals company as it expands into a new market to fuel continued long-term growth.
Think long-term
Businesses wax and wane over time, so picking the perfect point to buy is close to impossible. But if you put money to work in good companies and stick with them over time, you should be well-rewarded. The key is to stay around long enough to benefit from the fundamental growth that businesses like Enbridge and Steel Dynamics are building.
