Today, it's all about the fast money. In the market, out of the market... this stock, that stock...
Of course, that's perfectly fine for traders. The good ones earn small fortunes that way. But for folks who don't have that kind of experience, being nimble is simply an invitation to be whipsawed by the markets.
You may be one of them.
For instance, are you fed up with stock recommendations that only seem to last a couple of weeks?
Or do you constantly find yourself buying on a day when the market is hot, because you feel enthusiastic, only to end up selling on a bad day, because the same stock suddenly looked less attractive?
If so, there's a solution to all this day-to-day madness. Despite the rumors of its demise, there are still stocks you can buy and hold forever.
Of course, seasoned income investors have known this for years. That's why the truly rich don't spend their days watching the financial news and trading stocks. They're too smart for that.
They know that investing in steady-income producing dividend stocks is just as rewarding over the long haul.
How to Pick the Long-Term Winners However, picking successful dividend-paying stocks is not as simple as buying only the stocks with the highest yield. In fact, the stocks with the highest yields are often the ones that trip up investors the most.
When it comes to buying stocks you can truly hold forever, what's important is the company's track record.
Specifically, you're looking for companies that have a decades-long record of increasing dividends and providing value to investors.
These are stocks that can generate profits like clockwork-even in down markets. And here's something you may not realize: even with all of the twists and turns there are plenty of these companies to consider.
In fact, at the moment there are 10 companies that have increased dividends every year for 50 years or more, another thirty-eight that have succeeded in doing so for 40 years and another forty-one companies that have increased their dividends every year for 30 years.
That's eighty-nine companies to choose from.
These companies make excellent permanent investments, for four reasons:
- Their ability to increase dividends every year for several decades indicates that their business is long-term oriented and has the ability to survive recessions without crises.
- Having established a long track record of dividend increases, these companies are loath to break it, and so will make extra the effort to ensure they can continue paying dividends during recessions.
- Since we can be confident that these companies will continue to increase their dividends, investors no longer need to worry about their share prices (except as a chance to buy more.) At some point, the increased cash flow to investors will result in a higher stock value.
- The best thing: we don't have to pay a premium for these track records. Many of these companies are currently trading at a discount to the S&P 500's average of 15 times earnings.
After all, as long as they preserve their current super track record, why would you ever want to sell them?
Six Stocks to Leave to Your Grandchildren I call stocks like this heirloom investments.
Here are six of them, all with dividend yields above the current 30-year Treasury yield of 2.6%.
Buy them. Hold them. And watch them grow. Or if you're on the cautious side set a first review date of 2050!
These heirloom investments include:
- Procter and Gamble Co. (NYSE: PG): This consumer packaged goods company is the record-holder among all these heirloom stocks, having increased its dividend every year since 1954. P&G currently yields 3.7%, but its P/E ratio of 20 times historic earnings is higher than I like because of corporate raider Bill Ackman. He is buying shares aggressively through his vehicle Pershing Square. He'll get nowhere with it -- the company has a market capitalization of $179 billion and what possible reason would shareholders have for removing its management? Still, you might as well wait to buy until he's buzzed off.
- Diebold Inc. (NYSE: DBD): DBD is a maker of self-service delivery and security systems for the financial services industry (such as ATMs). This company has also increased its dividend every year since 1954. It currently yields 3.2% and trades on 12.1 times earnings. The dividend is 2.6 times covered by earnings.
- Emerson Electric (NYSE: EMR): Not only has this electrical equipment company increased its dividend every year since 1957, it's also on only its third CEO since 1954. That's my kind of management continuity, and the current guy is only 57 so he likely has a few years left yet. Emerson's yield is 3.6%, with a trailing P/E ratio of 14.1. Like P&G, this one benefits in a possible U.S. recession by having more than half of its business overseas.
- 3M Company (NYSE: MMM): This diversified technology company has long-term staying power. In the old days, 3M used to trade at 25-30 times earnings, so it's a real bargain at its current 14.5 times, although with only a 2.7% yield. This company has increased its dividend every year since the 1959 Cadillac was in vogue - the one with the fins!
- Johnson & Johnson (NYSE: JNJ): This healthcare products manufacturer has increased dividends every year since 1963. It's had some problems recently so earnings are a little depressed and it's trading at 18.8 times earnings. But with a yield of 3.6% and debt only 15% of its balance sheet, JNJ is a rock solid investment for your grandchildren.
- ABM Industries Inc. (NYSE: ABM): This is the relative fly-by-night of the group, having only increased its dividends every year since 1965. The company provides integrated facilities management solutions, cleaning, maintenance, parking lots and security. It has a dividend yield of 3.2%, a P/E ratio of 14.5, and a market capitalization of $1 billion, a considerably smaller company than others on this list.
Someday, you may even get a big thanks from your grandchildren!
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About the Author
Martin Hutchinson has nearly 30 years’ experience as a global investment banker – plus a reputation for being bearish at just the right time. Slate magazine singled him out as the financier who most accurately predicted how bad the 2009 bear market would turn out to be. Martin is the editor of the Permanent Wealth Investor, where he focuses on stocks that pay high, reliable dividends. In his Merchant Banker Alert, Martin uncovers the fastest-growing companies in the fastest-growing economies and brings those ideas back home to you. Learn more about Martin on our contributors page.
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