Ben Franklin had it right when he said there are only two certainties in life: death and taxes. Admittedly, I’m no Founding Father, but in my view there is a trio of exceptionally well-managed, publicly traded companies whose products are so fundamental to the way modern man lives that, if not existential certainties, are darned close to it. And what sets them further apart as paragons of investing virtue is their unbroken record of growing dividends that is likely to continue as far as the mind’s eye can see. In short, they’re the ultimate keeper stocks.
Let’s start with one human foible: smoking. If you look at only the US, you’d think it’s a fading habit – but you’d be wrong, because it’s growing faster in other parts of the world. There are 1.1 billion smokers globally today, and with 30 million more people take up smoking every year, that number is expected to rise to 1.6 billion by 2025. No matter how many people die from smoking, how ugly the warning labels on cigarette packages become, people are always going to smoke.
Which brings me to the first of my “forever” dividend paying stocks, Phillip Morris International (PM) . With a five- year projected earnings growth of 7.95%, the stock trading at a P/E of 15.1 on this year’s earnings, trailing-twelve-month free cash flow of almost $8.4 billion, and a 4.8% dividend, Philip Morris is in solid shape.
Next modern economic fact of life: oil. I’m one of those who doesn’t buy the story that we’re going to run out of oil in our lifetimes. Nor do I, along with a slew of economists, think solar, wind, tidal, river or geothermal power are scalable, cost-effective alternatives to fossil fuels, now or the foreseeable future. That leaves us with one alternative: the stuff that oil and gas companies drill, refine and sell.
You have several choices in this arena. Conoco-Phillips (COP) had $16 billion in cash flow in 2013, against only $709 million in interest expense and $25 billion in debt. ExxonMobil (XOM) generated a whopping $44.9 billion against $21.3 billion in debt and a remarkably low deb/equity ratio of 12.1% Chevron (CVX) produced $31 billion in cash flow against only $11 billion in debt. Chevron’s dividend yield is 3.2%, Conoco yields 4.3%, Exxon pays 2.7%. I personally think ExxonMobil is the best positioned, and would buy that.
My third irreducible feature of modern life: bottled beverages. Coca-Cola (KO), I believe, will be one of the few things left standing following the Zombie Apocalypse or the next Civil War. Even zombies will be drinking Coke – or one of its dozens of branded water, soft and hard drinks. A staggering $47 billion in Coke products were consumed last year, and this venerable company is projected to grow earnings at a respectable 6.5% clip over the next five years. The company routinely returns more than half its free cash to shareholders in the form of a 3.3% yield.
About Lawrence Meyers
Larry is regarded as one of the nation’s experts on alternative consumer finance. He consults for hedge funds and private equity via his Council Member status at Gerson Lehman Group, and as a member of Coleman Research Group’s Executive Forum. He also consults for Credit Access Businesses and Credit Services Organizations in Texas. His Op-Eds and Letters to the Editor have appeared in over two dozen major newspapers. He also brokers financing, strategic investments, and distressed asset purchases between private equity firms and businesses of all stripes. You can reach him at email@example.com.
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