There are a few stocks I plan to buy or already own that I expect to hold until I can pass them on to my kids. I have so much faith in these companies that I’m comfortable holding them for that long.
These companies operate businesses that are so fundamentally wrapped into the human experience that if they went bankrupt, the apocalypse would be right behind … and thus we would have more things to worry about than not receiving their dividends anymore.
That’s why I would buy them, by the way: because they will always pay dividends.
Here’s a look at these three must-own dividend stocks:
Exxon Mobil
Yield: 2.9%
I don’t buy into the “peak oil” theory that we are going to run out of oil. Solar and wind are proven failures as far as powering anything much of substance. The world will always run on oil.
You have several choices in this arena. ConocoPhillips (NYSE:COP) had $4.3 billion in cash flow in the TTM, against only $700 million in interest and $21 billion in debt. Exxon Mobil (NYSE:XOM) generated a whopping $22 billion in free cash flow against a tiny $327 million in interest, and $7.9 billion in debt. Chevron (NYSE:CVX) produced $8 billion in cash flow against only $12 billion in debt. And none of this mentions the billions of cash these companies have on their balance sheets.
Each stocks also offers steady, growing dividends. Chevron pays 3.4%, Conoco yields 4.5% and Exxon pays 2.9%. I personally think that while Exxon Mobil is the lowest-yielding of the trio, it’s also the best-positioned, and would buy that.
Coca-Cola
Yield: 2.6%
I think Coca-Cola (NYSE:KO) will be one of the few things left standing along with the cockroaches in a nuclear war.
Even the cockroaches, and any remaining mutants, will be drinking Coke.
They might also drink Fanta, Dasani, Bacardi Mixers, Mello Yello, Enviga, Five Alive, Full Throttle, Fuze, Hi-C, Lift, Minute Maid, Nestea, Odwalla, Seagram’s, Simply Orange … and about a zillion other beverages Coke owns.
It’s a fizzy thought that some $48 billion in Coke products were consumed last year, and that after all this time, Coke still is projected to grow earnings at a 9% clip over each of the next five years. The company routinely returns more than half its FCF to shareholders in the form of its 2.6% yield, and it also has more than $18 billion in cash on its balance sheet.
Philip Morris International
Yield: 3.6%
Philip Morris International (NYSE:PM) owns part of the market that serves the globe’s 1.1 billion smokers. Even better, those smokestacks are supposed to grow to 1.6 billion by 2025. More than half of Asia smokes.
Lawsuits? Meh. File as many as you want. No matter how many people die from smoking, no matter how many warning labels are put on packages, no matter how large the tax burden will be shifted to cigarettes, people will always smoke.
Philip Morris is in solid financial shape; trailing 12-month free cash flow is almost $8.3 billion, and the company has a five-year projected earnings growth of 11.3%. PM trades at 15.6 times this year’s earnings and yields 3.6% in dividends.
As of this writing, Lawrence Meyers was long KO and PM. He is president of PDL Capital, Inc., which brokers financing, strategic investments and distressed asset purchases between private equity firms and businesses. He also has written two books and blogs about public policy, journalistic integrity, popular culture, and world affairs. Contact him at pdlcapital66@gmail.com and follow his tweets @ichabodscranium.
