10 Companies to Own for the Next Decade
The list intentionally had no food companies due to changing trends in 2010, although the battle of the bulge and the fight against Frankenfoods now seems set. In technology, consumers ebb and flow and valuations in high-growth stocks can cripple long-term gains. That means no internet and data security stocks. While biotech has been hot and while Big Pharma is considering split-ups and even higher dividends, there are big risks in picking the wrong “winners.” Most retail and apparel companies are effectively new companies with new products once or twice a year. The financial sector was also avoided, even if some giants should do well.
24/7 Wall St. again wants to remind readers that there are many runners up that could have been considered for the list. We have informally included some alternative picks in 2015 by name. All these companies are highly established. They should weather coming economic cycles and should still fit within the secular trends that are in place.
When the list of stocks for the decade was created, it was meant to be geared toward novice and conservative investors. It was intended to be a list of go-to stocks to consider whenever buying opportunities arose and was mean to challenge the notion that “buy and hold is dead.”
24/7 Wall St. has included a table at the end of this report to show the market gains in the DJIA and S&P 500, also versus the key DJIA and S&P 500 exchange traded funds, as well as the gain of each. We have included earnings multiples for a blended 2015/2016 timeframe in our outlook for most companies. You will notice a keen focus on dividends here, but less of a focus on stock buybacks, mainly because we expect many companies to have to slow dividend and buyback growth in the coming years.
1. American Electric Power
Still one of the 10 largest publicly held electric utilities in America, power generator, transmission and distribution giant American Electric Power Co. (NYSE: AEP) serves over 5.3 million customers in 11 states. While it has diverse sources of generation from natural gas, hydro, wind and solar, AEP saw a marginal increase in coal-fueled generation in 2014.
AEP aims for cost-maximization and if there is one utility that lobbies and aims to protect investors and dividends it is AEP. It has raised dividend payouts for years, and its 60% payout rate generates a yield of 3.8% (that yield was almost 5% in 2010). We consider AEP one of the safest utility dividends and its old “Defend My Dividend” campaign from years back (now under American Gas Association) lets you know where this company stands. As of mid-2015, AEP and utilities pulled back handily from their highs due to interest rate hike concerns and due to valuations being excessive. AEP is valued at 15 times a blended 2015/2016 earnings estimate.
Alternative Utility Pick: Duke Energy Corp. (NYSE: DUK) has finally gotten back on track, and it is narrowing its aim despite being America’s largest utility by market cap. Duke is valued at about 16 times a blended 2015/2016 earnings estimate, and Duke’s dividend yield is a solid 4.1%. Duke’s shares are up about 75% since 2010, versus just over 85% for AEP.
2. American Water Works
This remains a top defensive stock that should be a core holding for moderate and conservative long-term investors. It has the defensive characteristics of being a utility, but it has no way to be replaced because it is a water utility. American Water Works Co. Inc. (NYSE: AWK) is simply the best-run water pure-play out there. With a market now close to $10 billion, it serves some 15 million people in 47 states, and the California Am-Water unit is only 600,000 of its base.
This stock is so defensive that it just never really pulls back by 10%. American Water is now many years past the RWE spin-off, and both Moody’s and S&P raised its credit ratings in May of 2015. American Water offers its investors a whole portfolio of virtual monopolies and it can grow via acquisitions and negotiations. New investors have to pay just under 20 times a blended 2015/2016 earnings to buy shares now. Its yield was closer to 3.6% in 2010, but the dividend was just raised again and now yields closer to 2.6%. The company remains committed to dividend growth for years ahead.
Alternative Water Pick: American Water Works remains the best water pick tied to utilities with the best future with a market cap that is defensive enough. Xylem Inc. (NYSE: XYL) has a solid future in water infrastructure and numerous wastewater applications. Still, its growth has become very choppy. Xylem trades at about 18 times a blended 2015/2016 earnings estimate and comes with a yield of about 1.5% that has room to grow once it gets its revenue and earnings growth back on track.