Pick a company to hold for 18 years. That's the problem thrown on the table when it comes time to select an investment for a newborn.
As an investor, I'm used to thinking in three-to-five-year terms. Extending the timeline to 18 years requires some extra thought in selecting a company. Considering the length of time involved, a dividend reinvestment plan (DRIP) makes investing easier -- it can be set up to have funds automatically added on a monthly basis for no cost, and dividend payments are automatically reinvested. A DRIP also makes a lot of sense, because 18 years gives the automatic reinvestment of dividends plenty of time to take hold, compound, and increase returns when the share price dips or stagnates.
Thinking long-term, and limiting my search to companies offering DRIPs, Wrigley (NYSE:WWY), Campbell Soup (NYSE:CPB), and Nike (NYSE:NKE) all pop out as logical choices on first glance. All three companies should be here in some form or another 18 years from now -- I figure people will still be chewing gum, eating soup, and wearing kicks well into the future. But I'm rejecting all of them from the running because their DRIPs have fairly steep fees.
So what companies have DRIPS that lack high fees? Hasbro (NYSE:HAS), General Growth Properties (NYSE:GGP), and Bank of America (NYSE:BAC) all come from very different industries. They're all well-managed, and their yields of 2.3%, 3.6%, and 4.4%, respectively, are all well-covered. Most importantly, they all have DRIPs that are fee-free after the initial setup.
However, only Bank of America has a valuation that truly intrigues me today -- which is important, because Bank of America requires $1,000 to start a DRIP -- and the current yield of 4.4% with dividend reinvestment makes up for the company's likely slower growth in comparison to the other two.
Investing in Bank of America isn't just about an attractive valuation and a substantial dividend yield. Bank of America has more branches than any other bank in the country, and its geographic coverage is also the widest. While Bank of America is undeniably large, it still earned a robust 1.4% return on assets and 16.3% return on equity last year, both of which are healthy for a bank. When you're investing for 18 years or longer, it's hard to argue with a company that is as stable as Bank of America and also sports such a compelling valuation.
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Bank of America is a Motley Fool Income Investor selection, and Hasbro is a Motley Fool Stock Advisor pick.
Nathan Parmelee has no financial interest in any of the companies mentioned. The Motley Fool has an ironclad disclosure policy.
