As Warren Buffett said: “If you aren’t willing to own a stock for 10 years, don’t even think of owning it for 10 minutes.”
But why stop at 10 years? Why not 30 years, or 50 years? Heck, why not 100 years?
After all, if a company is going to thrive over the next century, it will have to possess certain qualities: a strong financial position, wide competitive moat, an essential (or at least highly desirable) product or service and an ability to create shareholder value in good times and bad. In other words, thinking long-term can help you identify desirable investments and avoid risky ones.
With that, let’s throw it over to our panel of experts, each of whom was asked to pick one – and only one – dividend stock for the next century. We’ve edited their comments for clarity and space. (A hat tip to investor website The Motley Fool, where we got the idea for this story).
Andrew Hallam, author of the forthcoming Millionaire Teacher
Pick: Coca-Cola Co.
It’s a simple business that won’t excite too many people, but its stock price will steadily rise with its profits. Coca-Cola’s advertising signage (which costs the company nothing, in many cases) can be found everywhere from Shanghai to Morocco’s Dades Gorge. The average North American has never heard of most of Coca-Cola’s products; more than 3,500 drinks are under their label. With most people in India and China still living in Third World conditions, their future prosperity will bode well for Coke. When a promising new competitor comes along, Coca-Cola often buys them, outright, with cash from their very deep pockets. And that new drink becomes part of their monstrous distribution and advertising network. Nobody is going to usurp Coke (or Pepsi) as the world’s top two drink brands. Rich and poor alike will be embracing Coca-Cola products for another hundred years, at least.
Christopher Varley, art dealer and dividend growth investor
Pick: Colgate-Palmolive Co.
Colgate-Palmolive generates more than 60 per cent of its sales outside the U.S., and controls more than 44 per cent of the world’s oral hygiene market. It is a virtual monopoly in some countries. Colgate’s stock price is always a bit “expensive” – it trades at high price-to-book and price-to-earnings ratios. But it has high return on equity, an attractive profit margin, and manageable – and well-managed – debt.
Colgate has paid dividends since 1895, and has doubled its dividend on average every eight years since 1979. The current yield is only 2.7 per cent, but my yield based on the price I paid for the stock is significantly higher, and the dividend payout ratio is a sustainable 48 per cent. I believe that this is a dividend-paying equity that one can buy and hold “forever.”
Lyle Stein, chief executive officer, Leon Frazer & Associates, and manager of the Horizons AlphaPro Dividend ETF
Pick: Enbridge Inc.
Leon Frazer has owned Enbridge for 60-plus years and we will continue to own it because we like the fundamental infrastructure nature of the pipeline business. They have the ability to put pipe in the ground at what today is probably the lowest cost of capital in the business, and that’s a huge competitive advantage. The total return, including dividends, over the last 60 years is 9.5 per cent annually.
The global transportation system today is significantly linked to carbon-based fuels, which today are reasonably priced. Obviously, the risk to any energy transporter is a rise in the price of energy, because alternatives can potentially emerge. All I know is that people forecast the end of the oil business back in 1972 but companies are still looking for oil today.
Robert Cable, director, wealth management with ScotiaMcLeod and author of Investing on Autopilot
Pick: Atco Ltd.
The largest and longest-lasting energy deposit known to man currently is Alberta’s oil sands, and there will be an ongoing need to exploit these massive deposits that should last far more than 100 years. Atco is extremely well-positioned to benefit from the oil sands development as the company provides services to utilities and energy companies, in addition to supplying structures and logistics. Atco is not just a local company; it operates on six continents. It has regulated operations that offer consistent, stable returns as well as non-regulated ones that offer the ability for above-average growth in earnings.
Over the last 20 years, Atco has increased its dividend at a compound annual growth rate of 11.5 per cent. It owns 53 per cent of Canadian Utilities, a pipeline, energy and electrical transmission company that also has a long record of dividend growth. Lastly, Atco shares have a beta of 0.49, meaning they are only about one-half as volatile as the market.
Charles Carlson, editor of DRIP Investor and author of The Little Book of Big Dividends
Pick: Exxon Mobil Corp.
Exxon Mobil has a long history of paying dividends and has increased its dividend annually for more than 25 years. I like the company’s long-term earnings growth prospects, and I like its strong finances. I’m not convinced that alternative energies will be as big a force as people think going forward. Also, Exxon has made a strong move into natural gas, which I think has an interesting future given its price and availability.
Exxon is the classic “Steady Eddie” stock – a dominant player in its industry that rarely is at the top of the leaderboard but gives you fairly consistent performance, year in, year out. These are the types of stocks that you want to buy and hold for 100 years.
Anil Tahiliani, portfolio manager, North American equities, McLean & Partners Wealth Management Ltd.
Pick: SNC-Lavalin Group Inc.
Looking over a 100-year time frame you need to look for megatrends, and one of the biggest trends is population growth. The United Nations predicts that the global population will hit seven billion this year and 10 billion by 2100. Infrastructure demand will grow significantly as the need for mass transit, roads, water treatment, hospitals, electricity, mining, petrochemicals and oil and gas increase.
One of the best ways to play infrastructure is through SNC-Lavalin, a global construction and engineering firm. It has a strong balance sheet, operates in 100 countries and has expertise working in difficult political and weather environments. It also has a track record of increasing dividends, a conservative management team and it trades at a discount to its global peers. The global trend of debt-burdened governments using private-public partnerships to build more infrastructure also bodes well for SNC-Lavalin.
Murray Leith, vice-president and director of research at Odlum Brown in Vancouver
Pick: Coca-Cola Co.
I’d pick a company with a very strong brand in an industry that is not likely to change much, like Coca-Cola. Apparently, even Osama Bin Laden was buying Coke by the caseload. When the biggest enemy of America buys its most iconic brand, I think that tells you something about the power of the brand.
Bill Bouchard, founder of dividendinvestor.com and dividendinvestor.ca
Colgate-Palmolive manufactures and markets household products including toothpaste, toothbrushes, mouth rinses, dental floss, liquid hand soap, shower gels, bar soaps, deodorants, antiperspirants, shampoos, conditioners, laundry detergents, dish washing liquids, household cleaners, oil soaps and fabric conditioners. Its total shareholder return over the last 25 years has been an incredible 3,369 per cent.
With over $15-billion (U.S.) in annual revenue, [a majority of which] comes from international operations, Colgate-Palmolive is truly a global company. Its track record of paying a dividend every year since 1895 is impressive by any standard.
Join us for a live discussion Wednesday, May 25 at 12 noon ET with Steve Hansen, analyst with Raymond James Ltd.
Mr. Hansen was ranked for his accuracy in identifying winners and losers in the diversified industrials sector. He widely covers transportation and agriculture - and will answer your questions on selecting stocks within those arenas.
Readers using mobile phones should read the discussion by following this link.