While many investors may find it sensible to hold long-term investments when there are so many exciting chances on the market, a proven strategy for amassing significant returns is precisely to do so: avoid all noise and keep investing.
Many shares are suitable for this strategy, but the best are dividend-paying companies. That's because those who offer regular payouts are often also an incentive to reinvest your dividends and unlock the power of compounding, which will make your savings grow faster. By buying shares in companies with a long history of reliable payments and growing dividends, you can also protect your investments against the corroding effects of inflation.
These are our two choices for investors in buy-and-hold:
1. NextEra Energy
We love utilities for the long term for a simple reason: they invest billions of dollars to build assets that generate solid cash for their investors. As long as customers continue to pay their energy bills, the money continues to flow.
In this space we especially like NextEra Energy (NYSE :), the Florida-based utility that has been scaled up by delivering clean energy, which will be difficult for competitors. NextEra is the largest American supplier of renewable energy, which generates electricity from wind and sun. The company has a large pipeline company and a growing storage for energy storage.
NextEra Energy, Weekly
The big difference between NextEra and other traditional utilities is that the growth was not financed by a huge injection of debts. Instead, the company cleverly used the government subsidies and tax benefits that were offered to producers of clean energy. It usually sells the output to utilities, many of which must obtain power from green sources to meet state mandates.
The utility company plans to invest $ 40 billion in its development projects by the end of next year. This should stimulate growth, especially at a time when the chance of renewable energy is enormous and the company has already built up an impressive scale. Half of the electricity production capacity that was added in the US in 2017, according to the Energy Information Administration, was wind and solar energy, compared to 29% in 2010.
NextEra expands its traditional utility customers to build wind farms and solar parks directly for large companies such as Google parent Alphabet (NASDAQ), some of which want to use green energy facilities for financial and public relations purposes, the Wall Street Journal reported in June.
This mix of clean energy / energy storage activities has rewarded investors. NextEra shares have doubled in value since 2014, thanks to the strong profit and the growth of the dividend.
The shares closed yesterday at $ 188.23. With a dividend yield of 2.66%, NextEra pays an annual dividend of $ 5 per share. The company plans to grow between 12-14% until the end of 2020.
2. Toronto-Dominion Bank
Just like utilities, bank shares are one of the best places to park your investment for the long term. We love banks that are north of the border than their American counterparts, because Canadian banks have better assets, a very strong regulator and a history of paying dividends.
TD Bank, weekly
Among the Canadian lenders, Toronto Dominion Bank (NYSE 🙂 is among our favorites. Following its organic growth in the US over the past decade, TD Bank has become the sixth largest North American lender and now owns more than 40% of TD Ameritrade (NASDAQ :). Its dominant position on the Canadian market and a large presence in the US gives the bank a turnover diversification that has accelerated the growth in its income and dividend over the past five years
When it comes to earning income from your shares, it is difficult to beat the TD Bank's track record. The company has paid dividends since 1857 and has, since 2007, achieved a compound annual dividend growth of 9.4%. Closing yesterday at $ 58.29, the shares currently deliver 3.52%, with an annual dividend of $ 2.04 per share.
Bottom Line
Both NextEra and TD Bank are the kind of shares that investors can invest in a buy-and-hold portfolio and then forget, without having to worry about daily volatility in the market. As the years progress and you continue to invest dividends in the portfolio, it will be very satisfying to see how quickly your savings grow.
