Will These Five Stocks Love Me Back?
Matthew is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Stock trading televangelist Jim Cramer is known for quipping that “stocks are only pieces of paper and are not worthy of any affection.” While I get what he’s trying to say, I think you’ll probably agree with me that stocks are more than pieces of paper. They represent ownership in tangible businesses that make real products and own physical assets.
Over time we begin to favor certain businesses we love a winner. The biggest win is when a company can grow both its share price and dividend. Five companies have done that for me over the years and I love them for it, but will the keep up their winning ways?
I originally bought Apple (NASDAQ: AAPL) not too long after I bought my first iPod paying just $90 a share. In my early trading days I promptly sold the shares when they hit $100 and then waited for them to come back so I could do it all again. Never happened and I missed out until I realized that Apple was building an ecosystem that’s interlocking multiple devices that their customers feel the need to refresh every few years. That ecosystem is churning out incredibly profitable recurring sales that show no signs of abating.
While Apple sells very hip and useful products, Brookfield Infrastructure Partners (NYSE: BIP) own very boring cash generating assets. Coal terminals, ports, toll roads, utilities and trees just don’t compare to the coolness factor of an iPhone. However, these assets produce very strong recurring cash flows. These cash flows are protected by barriers to entry that essentially lock them in and grow them at rates above inflation. Strong cash flows that are protected make for future wins that are virtually guaranteed.
Those same strong cash flow characteristics that are the result of high barriers to entry are also enjoyed by Enterprise Products Partners (NYSE: EPD). Tens of thousands of miles of pipelines, millions of barrels of storage capacity, and many other midstream energy services assets have enabled Enterprise to raise their dividend for 33 consecutive quarters. Combine that with a multi-billion dollar capital expenditure plan and there is no reason to believe they won’t keep piping more cash to their unit holders for years to come.
Piping cash dividends to shareholders is something that Intel (NASDAQ: INTC) has done for the past two decades. Their vertical integration has proved to be a powerful and durable competitive advantage. It’s impossible to replicate the system that Intel has developed as few companies can match the amount of money they plow back into R&D. That R&D has yielded a five year average return on investment of 17.5% for the company, nearly double the industry average. That investment return has given them more than enough cash to be pumped back to their shareholders which again shows no signs of drying up.
Linn Energy (NASDAQ: LINE) on the other hand is working hard to pump even more oil and gas out of older wells so they can then distribute it back to their investors. In buying up older producing properties from their larger peers they’re able to invest in high certainty projects while locking in their cash flow through extensive hedging. Given their stable business model and secure cash flows there is no reason to think that their distributions will stop flowing.
Building an ecosystem of interlocking and ever more profitable parts is a winning formula. So is building assets with high barriers to entry or building a vertically integrated company that can plow billions back into R&D. Stocks might just be pieces of paper, but it’s hard not to feel some sort of affection for business models that are built to endure.
Finding investments which will stand the test of time is a better way to invest. These five companies are built to last and should have no problem showing some love to their shareholders for years to come. They's why I've added each to my virtual “No Drip, No Mess” Portfolio.
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latimerburned owns shares of Linn Energy, LLC, Enterprise Products Partners L.P., and Apple and has the following options: Apple and Intel. The Motley Fool owns shares of Apple, Brookfield Infrastructure Partners, and Intel. Motley Fool newsletter services recommend Apple, Brookfield Infrastructure Partners, Enterprise Products Partners L.P., and Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.