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7 Great Stocks to Own for the Long Term

Steven Goldberg

Plus a fund that owns all of them — and more.

The bull market is more than four years old. I've stayed invested, but I've been nervous all the way. I bet a lot of investors feel equally unsettled. After all, stocks are much more expensive than they were a few years ago.

What to do? The logical course is to buy the sturdiest stocks you can find. This article offers seven especially hardy companies — plus a low-cost fund that invests in all of them, as well as a bunch of others.

See Also: 7 Funds to Hold Forever

What makes these stocks compelling? All have strong competitive advantages over their rivals — and all pay dividends but not excessive dividends. Buying stocks with unusually high yields can be a recipe for disaster. Such companies often don't retain sufficient earnings to continue growing — or they pay high dividends because they have few growth opportunities and can't think of anything better to do with their cash. Instead, stick to dividend-growth stocks. (Some academic studies show that stocks with steadily growing dividends have garnered the best returns in the stock market.)

The Nasdaq Dividend Achievers index, until recently known as the Mergent Dividend Achievers index, is my favorite list of such stocks. To make the list, a company must have raised its dividend in each of the past ten years. In addition, a company must pass other proprietary screens designed to ensure its financial health.


One big caveat: Many of these stocks have been bid up. Investors, fleeing the microscopic yields on bonds, have flocked to defensive dividend payers. The cheapest stocks today are those that are sensitive to the economic cycle — and because their fortunes tend to ebb and flow, they can't usually boast unblemished records of dividend increases. Although you shouldn't ignore these cyclicals, you'll do better over the long term with shares of growing companies that regularly boost their dividends. They will earn you good money — and let you sleep better at night. Take your time accumulating the dividend growers, though, and look for good price points to buy.

Johnson & Johnson (symbol JNJ, price $85.12, yield 3.1%), the world's largest health care company, makes and sells pharmaceuticals, medical devices and diagnostics, as well as consumer products. The stock trades at 14 times analysts' estimated earnings for the coming 12 months. Few of J&J's patents are expiring soon, and the company has launched several new drugs that have the potential to become blockbusters. J&J just hiked its quarterly dividend by 8.2%, to 66 cents per share. The stock is, incidentally, a member of the Dow Jones industrial average. (Share prices and related data are as of April 26; the yield is based on a recently announced increase in the dividend rate.)

Occidental Petroleum (OXY, $86.66, 3.0%) finds most of its oil and gas in Texas and California, largely through cost-effective techniques of drilling in proven oilfields. The company, which also operates abroad, has a strong balance sheet that lets it take advantage of distressed properties. Unlike many major oil and gas companies, Oxy Pete isn't burdened by a low-profit refining and marketing business (that is, gasoline stations). The stock changes hands at 12 times estimated earnings for the next 12 months. Oxy says it will probably buy back shares in the near future.

PepsiCo (PEP, $82.51, 2.6%) will likely never catch up with number one Coca-Cola (KO) in the soft drink business, but it is the dominant player globally in salty snacks. Brands include Lay's, Ruffles, Doritos, Cheetos and Tostitos, not to mention Quaker Oatmeal, Rice-a-Roni, Gatorade and Tropicana. The stock trades at a somewhat pricey 17 times estimated year-ahead earnings.

Note: Nelson Peltz's Trian Fund Management has invested $1.4 billion in the stock of both PepsiCo and Mondelez (MDLZ), a leading snack-food maker (Cadbury, Oreo and Ritz, among others). Peltz hasn't indicated his intentions, but he may want the two snack food operations to be combined. I don't think Pepsi shareholders will be hurt.

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