If you are building a portfolio of investments, with the hope that you will one day pass on your wealth to heirs, you need to focus on special stocks. You aren't looking for hot companies, but ones that have proved they can stand the test of time while still rewarding investors well along the way.
Federal Realty Investment Trust (FRT -0.37%), Hormel Foods (HRL 0.14%), and Texas Instruments (TXN 1.27%) all fit this mold. Here's a quick primer on how they can help you build lasting generational wealth.
1. The best dividend record of any REIT
Federal Realty, a real estate investment trust (REIT), owns strip malls and mixed-use properties. It has a very focused portfolio, with only around 100 assets in it.
But that's not because it is young and small, it's because the company puts a huge amount of effort into buying properties in the most attractive locations. Then it invests heavily in those properties to make sure they are modern and attractive to both consumers and tenants.
The success of this approach is best seen in the REIT's dividend history, which includes 56 consecutive annual increases, the longest streak of any REIT. The compound annual growth rate over that span was a very attractive 7%, though more recently, it has slowed.
Indeed, Federal Realty isn't a high-growth stock that's going to knock your socks off; it's a cornerstone income investment (the yield is around 4.4%) upon which you can build a broader portfolio. But that's a great thing to own if you want to build generational wealth.
2. Muddling through is what Hormel does
There's no point trying to sugarcoat it: Food producer Hormel is facing a number of headwinds today that have investors worried. The list includes avian flu, a slow rebound in China, difficulty with a recent acquisition, and troubles passing on rising costs to customers.
All are likely to be temporary, which is why investors should look at the longer-term success the company has achieved.
The best example of this is its 57 consecutive years of dividend increases. But there's more to it than that: Over the past decade, the dividend has grown at a very attractive 12% or so a year on an annualized basis.
The most recent increase was roughly 6%, which is relatively slow but came as Hormel has been dealing with a plethora of headwinds. If that's the type of dividend growth you can expect in tough times, it's hard to complain.
And there's the actual business. Hormel owns a portfolio of iconic brands, including its namesake brand, SPAM, Planters, Skippy, and Wholly Guacamole, among many others. Its product innovation keeps consumers coming back and retailers excited to stock its wares -- it does exactly what you want to see a consumer staples company do with its business.
With a yield near historical highs today at 2.9%, it might be a good time to add Hormel to your portfolio.
3. Texas Instruments takes care of the basics
The fact that Texas Instruments hails from the microchip sector might sound flashy, but it makes some of the simplest chips around. And this is the reason to like the stock, since its basic offerings (they don't change at a rapid clip, like CPUs) go into just about every type of digital product. To put a figure on that, it has over 100,000 customers around the world.
TXN dividend yield data by YCharts.
Right now, there's a supply/demand headwind in the chip space, which has investors downbeat on the sector as a whole. Texas Instruments, however, isn't downbeat at all.
It's investing in new capacity because it believes there will be even more demand for digital products. That seems pretty reasonable, and if the company is right, it will come out of the current industry malaise an even stronger competitor.
The yield is currently near historical highs at just over 3%, suggesting the stock is cheap. And the dividend has been increased yearly for two decades, with an annualized rate of increase of 18% or so over the past decade.
You have to think about the long term
Wall Street can be an exciting place, but if you want to build wealth that can be passed down through the generations, you need to learn to avoid investment whims and fads. You have to look for companies that have proved they can withstand the inherent ups and downs of the business cycle while building your wealth over time.
That's exactly what Federal Realty, Hormel, and Texas Instruments have done. And given their strong business models, it is highly likely they will continue to.
