Today, I’m going to recommend 10 of the best stocks you can safely (and profitably) buy and hold for the next 10 years.
And if you cringed at the words “buy and hold,” I understand.
It’s great advice — except when it isn’t. At times, it can absolutely horrendous advice, particularly if you’re talking about individual stocks. Buying and holding the wrong stocks can result in the total destruction of your portfolio. Just ask anyone who had a large stake in RadioShack Corporation (RSHCQ) before it went belly up.And if you cringed at the words “buy and hold,” I understand.
Yes, 10 years is a long time to commit to a stock. Just think of everything that has happened over the past 10 years. For instance, in 2005, the iPhone hadn’t yet been invented by Apple Inc. (AAPL). We hadn’t yet had a housing crash … or a financial meltdown.
So, you’ll notice a few things about this list of best stocks. To start, the stocks tend to have timeless — even stodgy — business models. There are no tech names. Not even blue-chip dividend champions like Apple and Microsoft Corporation (MSFT) make the cut because too much can change in a decade. Ask BlackBerry Ltd (BBRY).
To make this list of best stocks, the company should meet the following criteria:
- Must be supported by strong underlying macro trends — economic forces that are powerful and highly predictable.
- Should pay a good current dividend, or we should reasonably expect them to pay one on the very near future.
- Must be reasonably priced with an appropriate margin of safety.
Recurring themes you will see here are quality and stability. We’re looking for companies that can survive anything the market can throw at them over the next decade.
#1 Realty Income Corp (O)
There are few stocks that I would consider “multigenerational investments,” but triple-net retail REIT Realty Income Corp (O) is one of them.
What do I mean by that?
I own shares of Realty Income personally that I intend to pass on to my children someday. And if I raise my kids right, I would expect them to pass the shares on to their own kids someday.
There is no such thing as a “no-risk” investment, but Realty Income comes awfully close. The typical property for Realty Income would be your local Walgreens (WBA) or CVS Health Corp (CVS) pharmacy — a high-traffic, highly visible location that you pass on your daily commute. And as a triple-net landlord, the company has no real expenses. Its tenants are on the hook to pay for maintenance, insurance and taxes.
Realty Income has been one of the best stocks on a dividend-paying (and dividend-raising) front since going public in 1994. Since that point, O has made 536 dividend payments and hiked the dividend for 70 consecutive quarters. Importantly, unlike many of its brethren in the REIT space, Realty Income sailed through the 2008-09 meltdown without a scratch. Not only did it maintain its dividend throughout, Realty Income actually raised it.
I have no idea what the world will look like 10 years from now. But I have no doubt in my mind that the three rules of real estate will be the same then as today — location, location, location — and that Realty Income will still be paying regular dividends to its investors.
What’s the macro theme here? Income. With the baby boomers entering retirement, income investments will be in demand for a long time to come. Realty Income pays a nice 4.5% dividend at current prices, and the property portfolio is a bastion of safety and stability.
#2 Diageo plc (DEO)
U.K.-based Diageo plc (DEO) is the world’s largest seller of premium spirits, and its brands include Johnnie Walker scotch, Crown Royal Canadian whisky, Smirnoff and Ketel One vodkas, and Captain Morgan rum, among many, many others.
There is a lot to like about Diageo. In the developed world, drinkers are putting back less beer than they used to, but sales of wine and spirits have remained strong. This reflects both changing preferences by the aging baby boomers and the tastes of the millennials, who tend to prefer mixed drinks over beer.
But the real macro story here is Diageo’s exposure to emerging markets. Diageo expects to get fully 50% of its revenues from emerging markets this year, and that figure should rise with time.
“Emerging markets” might make some investors a little nervous these days given the volatility coming out of the region. But let me ask you a question: Ten years from now, which part of the world will you expect to have grown faster, the emerging economies of Africa, Asia and Latin America or the mature markets of the United States and Europe? I think you know my answer.
The rise of the emerging-market consumer is the macro trend of the next two decades.
Diageo trades for 24 times earnings and yields 2.3% in dividends. That is by no means “cheap” in a strict value sense, but remember that our time horizon here is 10 years. This is one of the best stocks to safely hold through 2025 and beyond, and I expect market-beating returns — even starting at today’s prices.
#3 Kinder Morgan Inc (KMI)
Oil and gas pipeline operator Kinder Morgan Inc (KMI) is one of my very favorite dividend stocks, and a stock I believe you can safely buy and hold for the next 10 years.
KMI owns and operates the largest network of oil and gas pipelines in North America. The sun rises, the sun sets, and Kinder Morgan’s network of pipelines continues to move energy from Point A to Point B.
If this isn’t a fantastic place to park money over the next 10 years, then I don’t know what is.
Kinder Morgan is a company run by one of the smartest men in the energy industry — Richard Kinder — whose interests also happen to be perfectly aligned with his shareholders. Kinder receives no salary for his work as chairman and CEO. His only compensation comes from the dividends he receives as a KMI shareholder, though as the owner of 233 million shares, Mr. Kinder is doing just fine. His dividend income is about $400 million per year … and naturally, he has every incentive to keep the dividend checks coming (and growing).
At current prices, Kinder Morgan sports a dividend yield of 4.4%, and during last year’s reorganization, management wrote that it expected to see dividend growth of at least 10% per year through 2020. Assuming you hold the stock through 2020, you’d be looking at 61% cumulative dividend growth. That would give you a yield on cost of 7% five years from now. Not too shabby.
We’ll see what it looks like in 10.
#4 Exxon Mobil Corporation (XOM)
Exxon Mobil Corporation (XOM) might get a few raised eyebrows given its performance over the past nine months. The collapsing price of crude oil has hit the share prices of the oil majors like a Louisville Slugger to the knee caps.
But Big Oil is anything if not resilient, and for the first time is a very long time, I can credibly say that XOM is cheap.
Yes, I understand that falling oil prices will take a bite out of profits. But Exxon Mobil’s dividend payout ratio is a very conservative 36% (currently — it will go up amid this year’s profit dip, but is expected to dip back down again once earnings recover), and the company has raised its dividend for 32 consecutive years. If XOM could survive and prosper during the 1980s and 1990s, when the price of crude oil actually dipped below $10 per barrel, then it can survive whatever comes its way over the next decade.
Over the very long term, Exxon Mobil and the rest of Big Oil face strategic threats from renewable energy and battery-powered cars such as those made by Tesla Motors Inc (TSLA). But I see these as threats 20 years or more into the future rather than 10.
In the meantime, enjoy one of the strongest companies in the world trading for just 11 times earnings and sporting a dividend yield of 3.3%.
#5 MTN Group Ltd (MTNOY)
I’ve made no secret of the fact that I’m a major Africa bull. It’s the last major investment frontier, and the growth is very real. Per capita GDP has more than doubled in the past decade, and according to Deloitte, seven of the 10 fastest-growing countries in the world are in Africa.
One sign of the booming middle class is Africa’s surprisingly high cell phone penetration; Africa had 629 million mobile subscribers as of 2014 despite having the lowest penetration rate of any region in the world.
Don’t underestimate the significance of this. Africa has harsh geography, which makes building infrastructure very difficult and very expensive. But mobile technology allows large parts of Africa to essentially leapfrog over legacy technology infrastructure — such as copper phone wires — and into the modern world.
This brings me to South African telecom giant MTN Group Ltd (MTNOY), one of the best stocks to play the continent rright now.
MTN Group is headquartered in South Africa, but it has more than 200 million customers spanning 21 countries across Africa and the Middle East. Roughly a quarter of its subscribers are from Nigeria alone. If you believe in the Africa growth story, then MTN Group is an absolute no-brainer to own. The expanding African middle class will be using an ever-increasing amount of voice and data services, and MTN Group will be there to serve them at every step.
There will be setbacks along the way — this is Africa we’re talking about — but again, we’re talking about a 10-year investment.
MTNOY trades at a reasonable price/earnings ratio of 14 and pays a respectable, growing dividend currently yielding 5.5%.
#6 Telefonica S.A. (TEF)
Along the same lines we have Spanish telecom giant Telefonica S.A. (TEF), one of my favorite ways to play the emergence of Latin America’s middle classes.
There is nothing more critical to modern life than the mobile phone, and Telefonica is the dominant provider in much of Latin America.
Latin America is at a much higher stage of development than Africa, of course. But mobile phone — and particularly smartphone — penetration is still much lower than in the developed world, meaning that TEF still has a lot of built-in growth in the years ahead. As consumers continue to move from prepaid mobile plans to contract and data plans, Telefonica stands to increase its revenues per user without the heavy marketing costs associated with pulling users away from competitors.
Today, Telefonica’s biggest risks come from currency fluctuations in Brazil rather than instability in Europe, its home market. This is a problem that may get a worse before getting better, as Brazil’s political crisis stemming from the Petroleo Brasileiro Petrobras SA (PBR) bribery scandal shows no signs of abating. But I believe most of the bad news was priced in a long time ago.
Telefonica found it necessary to cut its dividend in 2012 due to fallout from the eurozone debt crisis — something that long-term investors hate to see. But after the eurozone markets stabilized, Telefonica reinstated its dividend and hasn’t looked back since.
At today’s prices, TEF stock yields a very respectable 6%, and I expect healthy dividend increases in the years ahead.
#7 Silver Bay Realty Trust Corp (SBY)
It’s hard to lose money buying dollars for 80 cents. And that is exactly the situation we have today in Silver Bay Realty Trust Corp (SBY).
Silver Bay is a real estate investment trust that manages a portfolio of more than 6,800 single-family homes, primarily in the markets that were hardest hit during the housing crash that started in 2007, such as Phoenix, Tampa and Las Vegas. Silver Bay buys the properties — often at below-market prices — rehabilitates them and rents them out to American families.
This is a fantastic business to be in these days. Home prices are rising, and I have every reason to believe that home values will continue to rise given tightening supply and — importantly — a huge surge of demand coming down the pipeline from the millennials (eventually) settling down and starting families.
The coming of age of the millennials is one of the strongest macro themes in the world today — one that I consider virtually unstoppable. And in Silver Bay, we’re buying the homes that millennial families will soon be renting and later buying en masse.
What about dividends? SBY pays a modest dividend, at 9 cents per share quarterly, which works out to a 2.3% dividend yield. But Silver Bay is also a new company that only began trading in very late 2012. As the company’s portfolio continues to stabilize, I expect to see the dividend to grow.
It’s hard to beat Silver Bay’s margin of safety. The stock sells at a 20% discount to the net value of its property portfolio.
Translation: You could literally shut the company down and sell its inventory for a 20% profit. Not bad.
#8 LTC Properties Inc (LTC)
If you’re looking for a company that is almost uniquely well positioned to profit from the demographic changes of the next 10 years, look no further than LTC Properties Inc (LTC).
LTC is a landlord serving the needs of aging baby boomers. It invests primarily in the long-term care sector of the healthcare industry, including long-term care provider properties, skilled nursing properties, assisted living properties, independent living properties and memory care properties. LTC also invests in first-lien mortgages secured by long-term care properties.
Roughly four-fifths of LTC’s portfolio is invested in properties, and the remainder is in mortgages. Skilled nursing makes up 55% of its properties, with assisted living the next biggest portion at 37%.
LTC pays a monthly dividend that yields a healthy 4.5%, competitive among other medical REITs. And importantly, LTC also raises its dividend constantly — at a 9.3% annual clip over the past five years. In other words, had you bought into LTC five years ago, you’d be enjoying a yield on cost of 6.9%. Not bad!
Can we expect that kind of performance in the 10 years ahead? Given that 8,000 baby boomers turn 65 years old with every passing day, I would say yes.
#9 Ventas, Inc. (VTR)
Along the same lines we have one of the bluest of blue-chip REITs, Ventas, Inc. (VTR) — one of the few REITs included in the S&P 500.
With a market cap of $23 billion, Ventas is one of the largest holdings in most REIT index funds. Due to its sheer size, VTR cannot grow at the rate that some of its smaller rivals can.
But with its size comes stability and financial strength.
A little more than half of Ventas’ portfolio (by contribution to net operating income) goes to senior housing, split between 24% in “triple net” properties, 25% in domestic operating properties and 4% in international operating properties. Another 17% of the portfolio is invested in skilled nursing/post-acute care facilities; 18% is invested in medical office buildings, with 7% in hospitals and the remainder spread among loans and other properties.
So, in Ventas, you get a nice, diversified sampling of the facilities that aging boomers will be using in the decades ahead.
Ventas sports a relatively lower current dividend yield of 3.1%. But like LTC, Ventas is also a serial dividend raiser. VTR has grown its dividend at a 8.1% annual clip over the past five years.
It might be hard to sustain that kind of growth over the next 10 years, but if anyone can do it, it would be Ventas.
#10 McDonald’s Corporation (MCD)
And finally I come to the red-headed stepchild of the Dow Industrials … that fast-food joint everyone loves to hate, McDonald’s Corporation (MCD).
Given McDonald’s lack of growth in recent years and the general sentiment that it is getting its lunch eaten by healthier fast-casual chains like Chipotle Mexican Grill (CMG), McDonald’s might seem like an odd choice to buy and hold for the next decade. But McDonald’s boring stodginess is exactly why it makes the cut.
McDonald’s has been around a long time, and this is not the first time it has fallen behind trendier peers. MCD has redefined itself multiple times, and it will do so again.
McDonald’s is anything if not a survivor.
Let me put it to you like this: I think — and sincerely hope — that Chipotle is still around in 10 years. And I eat there often enough to probably single-handedly keep at least a few of their locations open. But while I think Chipotle will still be around, I know McDonald’s will be.
I’m willing to buy McDonald’s today, when it is out of fashion, because it is a company that takes its commitment to shareholders very seriously. McDonald’s has raised its dividends for 38 consecutive years and pays a current dividend yield of 3.5%.