For many investors, it doesn’t make sense to keep track of daily market gyrations. Their investment style is to buy quality stocks and then hold on to them forever.
The great investor Philip Fisher in his book Common Stocks and Uncommon Profits, famously argues that the best time to sell a stock is "almost never." Warren Buffett, the world’s most successful value investor, is also very familiar with the art of buying and keeping.
If your goal is to build a solid cash stream for retirement, then holding some “forever stocks” in your portfolio is a great idea. You can tap your dividend stocks for regular income when you need it. And when you don’t need passive income, these cash flows can be used to re-invest and unlock the power of compounding.
Forever stocks pay dividends no matter what’s happening with the general economy. Their payouts survive peaks and troughs, wars, depressions and asset bubbles.
These companies' products and services are so crucial that we can’t imagine a normal life without them. This quality has turned these businesses into cash machines that never run out. Here are our three top picks in this category:
1. Coca Cola
Atlanta-based food and beverage giant Coca-Cola (NYSE:KO) is an ideal forever asset to hold. While many companies regularly reward investors through payouts, you'll rarely find a company that has been issuing dividend checks for more than a century.
This impressive track record doesn’t hide the fact that selling food and beverages is a tough business that requires constant innovation and cut-throat competition. Coke, in its 128 year of business, has proved that its brand has immense power to cope with these pressures.
Just like many consumer brands, Coca Cola is also taking a hit on its sales due to the COVID-19 pandemic as sales in amusement parks and theaters dried up after lockdowns. But the company’s balance sheet remains strong, and its management is confident in its liquidity position.
At a time when health-conscious consumers are shifting away from sugary drinks, the company is expanding its healthy offerings. As part of its push to grow beyond its namesake brand and become a “total beverage company,” Coke is acquiring startup beverage companies to resonate better with health-conscious clients and find new areas of growth. Its recent investments include Honest Tea, Fairlife dairy and Suja Life LLC.
Trading at $50.79 at yesterday's close, Coke’s stock is yielding 3.41% annually. That return might not look too exciting, but the company has a long track record of hiking its payout—for 56 consecutive years now. Its $0.41 a share quarterly dividend has more than doubled over the past five years.
2. Nike
Sportswear giant Nike (NYSE:NKE) is another great buy-and-hold candidate for long-term investors. The company is in a strong financial position and able to endure weakness coming from the COVID-19 pandemic.
Nike’s brand strength and its business model resilience was evident from the company’s successful execution of its e-commerce strategy during the pandemic when most of its stores were closed. Chief Executive Officer John Donahoe told investors that the company’s e-commerce operations remain “in growth mode,” despite the demand shock presented by the coronavirus outbreak.
Analysts on the Street have also advised clients to stick with their Nike holdings despite the earnings setback during the pandemic that forced the giant to close its stores. The maker of Air Jordan sneakers is well positioned for long-term growth, given its strong brand recognition and its ever-improving digital capabilities.
The trend toward digital should continue to “drive sales and operating margin expansion over the next several years,” according to Telsey Advisory analyst Cristina Fernandez.
Trading at $118.59 at yesterday’s close, Nike shares have rebounded strongly from the March low of $60.58 in the post pandemic market rally. If the stock weakens again in a broad-based sell-off, investors could find a good entry-point for acquiring shares. Nike pays $0.245 a share quarterly dividend, for a current yield of 0.80%, which has been growing regularly since 2004.
3. Verizon Communications
Telecom utilities embody many qualities of a forever asset. No matter which direction the economy heads, internet and wireless connections will likely be the last items consumers will cut from their must-have lists. This predictability makes them valuable stocks to own in your retirement portfolio.
Verizon Communications (NYSE:VZ), one of the biggest telecom providers in the US, is an excellent example of this. The company has been paying steadily, increasing dividends for 30 years.
Its $0.6275 per share quarterly dividend has grown more than 50% since Verizon stock first started trading in 2000, after the merger between Bell Atlantic and GTE. Its stock, which closed yesterday at $60.37, is offering a solid 4.14% annual yield, which doesn’t look bad if you compare it with the average yield of just 1.7% offered by S&P 500 companies.
At a time when the wireless industry is maturing and growth is hard to come by, technological breakthroughs are opening up new areas of growth. The next big thing for Verizon is the roll-out of its 5G network.
The 5G wireless networks are crucial for the success of some futuristic applications, including driverless cars, smart homes and remote surgical procedures.
Bottom Line
It’s always a good time to buy forever stocks like Coke and Verizon, and keep them in your income portfolio. Companies with durable competitive advantages, powerful brands and entrenched market positions continue to reward their shareholders through dividends. They are in a better position to ride through any economic downturns and outperform over the long run.