Virtually every decision you make when it comes to investing carries a risk or a trade-off. Buy a stock? It could go down. Sell a stock? It could rise after you let go of it. Take a profit? Pay capital gains tax. Take a loss? Well, you've lost money on the deal.
The fewer decisions you have to make, the more energy and effort you can put into making sure the choices you make look like the right ones at the time you make them. With that in mind, three Motley Fool contributors went looking for companies that might very well be long-term one-decision stocks. They wanted to find businesses that looked as if they could be worth holding on to for at least a decade, if not longer.
They chose Coca-Cola (KO), Lemonade (LMND 1.64%), and Enbridge (ENB -1.21%). Read on to find out why and decide for yourself whether one or more of them may deserve a spot in your long-term investment portfolio.
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Six decades of dividend growth can happen only if the company is strong
Eric Volkman (Coca-Cola): I've been a Coca-Cola bull for years at this point, not least because the stock underpins a durable, highly profitable business that's built to last. Coke also handsomely pays its shareholders to own it, in the form of a rock-solid dividend that's been raised for 61 years in a row.
It's no accident that it's been a long-term holding in the equity portfolio of Warren Buffett's juggernaut of an investment vehicle, Berkshire Hathaway. Buffett loves a wide-moat company, and no one anywhere near the food and beverage industry can approach the brand power and near-ubiquity of Coke's signature drink.
Coca-Cola is cheap to produce -- after all, it's almost 100% sugar and water -- and besides, the company only sells the drink's concentrates, syrups, and bases anyway. Its other beverage brands also tend to be similarly cost-effective.
That, combined with the enduring popularity of the leading products and their availability in every conceivable market on Earth, makes for a very profitable business. The company's net profit margin typically hovers around the 20% level, which is very high for a drinks business, to say nothing of an entity that's been around longer than we've all been alive.
It also means Coke the company is a monster cash generator. The annual free cash flow (FCF) line on Coke's graph has trended relentlessly upward, for the most part, over the past few decades. It crossed the $6 billion mark in the early 2010s and hasn't looked back. The 2022 figure was down some, but still Everest-high at more than $9.5 billion.
Coke has never skimped on that dividend, and it probably never will. It's a big part of its appeal. Many consider Coke to be in the top 10 among dividend stocks, if not the leader. It currently yields 2.3%, and while that figure has been higher in recent memory, the payout is almost certain to keep rising. And, more importantly, the company's products will continue to be popular -- even beloved -- keeping Coke's business very fizzy indeed.
Want versus will
Jason Hall (Lemonade): There are some wonderful, durable businesses out there that have stood the test of time. They seemingly print money, and they have a long history of adapting to changing markets, tastes, and disruptions. These are the "own for decades" stocks that can change your life.
On the other hand, there are stocks that have the potential to become one of these cash-cow stalwarts, if they can just realize it. When they do move from disruptor to stalwart, they're worth holding. Lemonade is one of these, but it remains firmly in the want-to-hold-for-decades camp, not having earned its place in the will-hold-for-decades corner of my portfolio.
Why is that, and what has to happen? In short, Lemonade does all the customer-facing stuff better than any other insurer does. It can price and approve most policies in seconds. Same for claims, including paying them. It uses artificial intelligence in ways other insurers simply haven't, and it has made structural changes that better align its interests with those if its customers.
But so far, it just hasn't been a good insurance company, measured by writing policies at prices that make it a profitable venture. The point? Investors need to be prepared to move on from a company they love if it's not loving them back. Buffett says his "favorite" holding period is forever, but it's not his only holding period. Buying stocks with the intention of holding for decades is ideal; just be ready to move on if the company doesn't deserve your loyalty.
A business driving consolidation in a still vital sector
Chuck Saletta (Enbridge): Canadian energy pipeline giant Enbridge recently saw its shares hit a two-year low based on its recently announced deal to buy some natural gas utilities from Dominion Energy. Apparently, the market isn't a fan of Enbridge's spending billions of dollars to buy up a fossil-fuel distribution business in the current political climate that heavily favors low-carbon energy sources.
Yet despite the political pressure, the economic realities continue to favor natural gas. The U.S. Energy Information Administration's 2013 energy outlook projects steady to increasing overall natural gas use through 2050, even in its "high uptake" scenario for renewable energy. Beyond that date, if natural gas is still being used at around the same rate in 2050 as it is in 2023, it's hard to imagine a scenario where its use gets instantly ended when 2051 comes around.
As a result, there's good reason to believe that Enbridge will get its money's worth from its investment in Dominion's natural gas utilities. With decades of likely high demand ahead of it and a market willing to punish investments in its industry, Enbridge is setting itself up to generate significant cash in an environment where others may fear to follow.
Add to it a dividend yield near 8%, and the result is a company that pays investors well and looks capable of doing so for many years to come. That sounds like a great recipe for a stock worthy of owning for a decade or more.
A long term journey still requires a beginning
Although Coca-Cola, Lemonade, and Enbridge all look like they may be worth owning for a decade or more, the reality is that your time as a shareholder will only start after you make your first investment. So make today the day you take that first step and decide if one of them may be right for you to own.
