Is it possible to determine the top-performing stocks of the next half-century? Before looking into the future, we need to consider the past. So let's start at the very beginning, as Julie Andrews might say.

Fishing in a well-stocked pond
Those familiar with the work of Wharton professor Jeremy Siegel will know that dividend-paying stocks such as Altria and Coca-Cola were the best performers since the beginning of the S&P 500 back in 1957.

The key to the amazing returns of these stocks was reinvested dividends. This is a theme we've covered in numerous articles here at the Fool, but that insight is worth emphasizing. If we are searching for top stocks for a time frame of 50 years, we need to look at dividend-paying stocks.

One place to begin our search might be the Mergent Dividend Achievers Select Index, whose constituents are U.S.-based companies that have all increased their annual dividend payments for 10 or more consecutive years. Since 1997, the index has returned 9% per year on average, which compares very favorably with the S&P 500's 6% over that time.

The magnificent seven
The index contains 220 dividend-paying companies. I've put together a sample of seven of them below:


Dividend Yield

Anheuser-Busch (NYSE:BUD)


Hershey (NYSE:HSY)


Chubb (NYSE:CB)


Illinois Tool Works (NYSE:ITW)


General Dynamics (NYSE:GD)




American International Group (NYSE:AIG)


Data from Yahoo! Finance as of Sept. 6, 2007.

Most of these companies need no introduction. Anheuser-Busch, Chubb, General Dynamics, and IBM are stock market stalwarts trading within spitting distance of their all-time highs. Hershey recently boosted its dividend by 10% and is starting to look sweet at these price levels. American International Group is the world's largest insurer, believed by many to be undervalued after suffering from the stigma of accounting fraud.

The name on the list that intrigues me most is Illinois Tool Works, a $32 billion company from the glamorous plastic and metal fastener industry. The company has grown net income at a 23% annual clip since 2002, it boasts a five-star rating in CAPS, and management just authorized a $3 billion stock buyback plan.

Will any of these be among the top stocks of the next 50 years? It's tough to say for sure, though I do believe one or two will make the list.

Looking ahead
So to recap: If history is any indication, the top stocks of the next 50 years will be businesses that have stable, growing dividends; reasonable valuations (part of the reason for Altria's outperformance, Siegel says, is that the constant threat of litigation meant it was always undervalued); and good managers.

Even if you find a top stock of the next 50 years, the only way you'll benefit from those potential gains is if you hold for the long term and let the power of reinvested dividends work in your favor.

James Early, advisor of our Motley Fool Income Investor newsletter service, scours the markets for the best performers of the next 10, 20, and yes, 50 years. Income Investor recommendations boast an average dividend yield greater than 4% and, collectively, those picks are beating the market at large by four percentage points. You can see all of his picks and research for free with a no-obligation 30-day trial. Click here to learn more about his favorite dividend-paying stocks.

This article was originally published on Jan. 26, 2007. It has been updated.

John Reeves hopes he will be able to see how well these companies perform 50 years from now. He does not own shares of any of the companies mentioned in this article. Anheuser-Busch and Coca-Cola are Motley Fool Inside Value recommendations. The Fool has a disclosure policy.