Buy-and-hold investments are about as old and stodgy as the strategy itself.
It makes sense. Buy-and-hold investing comes down to believing a company’s business model is both adaptable and long-lived enough to produce products and services that both thrive and survive — and more importantly, said company should throw off sustainable and increasing dividends year after year.
Which is why in polite conversation, the term “buy-and-hold” tends to invoke the same names: Clorox (NYSE:CLX). Johnson & Johnson (NYSE:JNJ). Proctor & Gamble (NYSE:PG). Buffett poster child Coca-Cola (NYSE:KO). The list goes on, but you get the picture.
But it’s time that picture changed.
The buy-and-hold model fits just as well for a new roster of players that I call the “New Age Fab Five.” These companies all possess the characteristics necessary for inclusion in the model that ain’t broke:
- Strong competitive advantages
- A loyal customer base who will pay for their products
- High returns on equity (ROE)
- Excess cash flow
Perhaps most importantly for our younger group, they all pay a dividend and easily have the cash and operating cash flow to increase it not only in the short run, but for a very, very long time to come.
And isn’t that what this is all about? Time is on our side — in fact, it’s part of the plan.
So, who are these guys? Well, the Fab Five includes familiar faces that have been around awhile — just not since the dawn of the Dow in 1928, like dividend old-fart 3M (NYSE:MMM). Here’s a look at these five new-age buy-and-hold stocks:
Say whatever you want about the Colossus of Cupertino, but admit it: Apple (NASDAQ:AAPL) innovates like nobody else in the world. Apple famously started in 1976, so I don’t want to hear that it’s a brand new company. What Apple is, is an adaptable, mature company with an astounding 47% return on equity.
And Apple sprinted out of the dividend blocks earlier this year, declaring a $2.65 quarterly payout — with the first distribution set for July 1 — good for a 1.9% yield on today’s prices. That’s a payout of $10.60 per share — an astounding absolute-value number when you consider Apple is starting from scratch.
Meanwhile, Apple has free cash flow of $30 billion per year on top of nearly $100 billion in cash on hand. So yeah, that dividend flow should continue.
Cisco (NASDAQ:CSCO) virtually invented the networking, switch and router world in 1984 when the company was founded. Cisco went public in 1990, registered $1 billion in sales by 1994 and hit a $100 billion market cap in 1998. Cisco is networking products, systems and services.
Cisco just started paying a dividend in the third quarter of 2011 at a fairly conservative — OK, maybe meager — 6 cents per share, or a 1.06% yield. But it’s a start.
Cisco’s ROE is on the low end of our list at 15%, but with free cash flow of $9.4 billion and cash on hand of $46 billion, the dividend has a long way to go — and with Cisco’s strong business, it has a lot of time to get there.
Yet another icon of the market — in this case, semiconductors — that practically invented the industry. Intel (NASDAQ:INTC) designs and manufactures integrated digital technology platforms.
Founded in 1968 by legends Gordon Moore and Bob Noyce, it took Intel one year to come out with their first semiconductor product. Intel went public in 1972, and by 1990, Intel became a household brand. The company’s innovations have continued to this very day.