It can be fun to bet on small, speculative growth stocks to make quick bucks in the market. But if you want to sleep easier at night, look for well-established, dividend-paying companies that can give you a reliable income for years or even decades into the future.
Let's explore some reasons why Realty Income Corporation (O +0.62%) and Phillip Morris International (PM 0.99%) could make excellent long-term buys.
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Income Realty Corporation
It is often said that real estate is one of the most reliable investments because everyone needs a place to live and do business, and the world isn't making any new land -- unless, of course, the Arctic melts or something. That said, betting on this industry can be challenging because of issues like property taxes, repairs, and bad tenants. Real estate investment trusts (REITs) like Realty Income Corp allow investors to bypass these challenges while getting exposure to the upside.
NYSE: O
Key Data Points
The company holds a diversified portfolio of commercial real estate assets, boasting a significant allocation to relatively safe industries like grocery stores, dollars stores, and auto repair shops, which can maintain demand even in a bad economy. This characteristic can make the company's operations somewhat recession-resistant, which is a crucial advantage in this increasingly uncertain economy.
Realty Income further boosts its safety through triple-net leases where the tenant is responsible for property-level operating costs like property taxes, insurance, and maintenance. This strategy helps protect Realty Income from inflation while making its revenue streams more predictable long term.
With a forward price-to-earnings (P/E) multiple of 37, Realty Income trades at a sharp premium to the S&P 500 average of 22. But you get what you pay for, and the company's size and track record make it stand out from smaller, less established alternatives. Realty Income sweetens the deal with a market-trouncing dividend yield of 5.5%, which it has managed to increase 131 times since its initial public offering (IPO) in 1994.
Phillip Morris International
It may seem hard to believe now, but during the mid-20th century, the tobacco industry generated explosive cumulative growth, akin to big tech today. While those days of heady expansion are over (mainly because of regulation and increasing health consciousness), the industry is still a cash cow because of its relatively low costs, brand stickiness, and addictive nature. Phillip Morris aims to future-proof its business through an aggressive pivot to alternative forms of nicotine.
As of the third quarter, smoke-free products accounted for a whopping 41% ($4.4 billion) of Phillip Morris's net revenue. And this side of the business enjoys encouraging growth drivers from Iqos, its proprietary heated tobacco platform. The recent acquisition of Swedish Match further strengthens Phillip Morris's position in the smoke-free segment and has expanded its global distribution network, especially in the U.S. market.
With a forward price-to-earnings (P/E) multiple of 18.8, Phillip Morris shares trade at a reasonable valuation, which is a big plus for fundamentals-focused investors because it leaves room for future growth. And when it comes to dividends, the company also stands out with a dividend yield of 4.01% compared to the S&P 500 average of just 1.13%.
Don't underestimate compounding returns
It can be tempting to hunt for the next explosive stock that promises to make you a millionaire overnight. But volatility is usually a two-way street. And over the long term, the stock market has averaged a yearly return of 10% despite all the ups and downs. With that in mind, investors can benefit from buy-and-forget stocks built to stand the test of time.
With dividend yields of 5.6% and 4% annually, Realty Income Corporation and Phillip Morris International take you halfway to the market's average return, while also offering significant potential for capital appreciation because of their stable, recession-resistant business models.
