3 Dividend Stocks You Can Own Forever

Imperial Oil Limited (TSX:IMO)(NYSEMKT:IMO), Canadian Pacific Railway Limited (TSX:CP)(NYSE:CP), and Canadian Utilities Limited (TSX:CU) belong in every income investor’s portfolio.

| More on:
The Motley Fool

Warren Buffett’s Berkshire Hathaway Inc. recently hit a remarkable milestone. On Thursday, Class A shares of the insurance giant surpassed $200,000 for the first time in the company’s history.

Berkshire has come a long way since Buffett’s investment partnership started buying shares between $7 and $8 apiece in 1962. Since then, the Oracle of Omaha has delivered a remarkable 21.50% compounded annual return.

How did Buffett pull this off? His secret to success is surprisingly simple: Buy wonderful businesses at a reasonable price and hold them forever. Indeed, his investments in dominant businesses like The Coca Cola CompanyInternational Business Machines Corp., and Wells Fargo & Co bear this out.

Of course, few of us could ever hope to replicate Buffett’s success. However, it certainly couldn’t hurt to try to emulate his investment style. With this theme in mind, here are three wonderful stocks you can buy and hold for the long haul.

1. Imperial Oil Limited (TSX: IMO)(NYSEMKT: IMO)

If you study Buffett’s shareholder letters, you’ll notice how often he brags about the people working for him. When you invest in a stock, you’re entrusting your capital to the management team. It stands to reason that the performance of the business can only be as good as the people running it.

Imperial Oil Limited has the most disciplined management in the oil patch. Unlike other companies, Imperial’s executives will only invest in a new project if it meets a very high threshold of profitability. Otherwise, they will return excess capital to shareholders in the form of dividends and buybacks.

This has resulted in a shockingly profitable business. Over the past five years, Imperial Oil has generated a 25% average return on capital employed — three times higher than the average return of its peer group.

2. Canadian Utilities Limited (TSX: CU)

There’s no better example of a natural monopoly than Canadian Utilities Limited. Because utility services cost tens of billions to build, it doesn’t make economic sense to have more than one competitor. That gives the existing utility company full control of the market.

This business model has allowed Canadian Utilities to churn out consistent dividends for shareholders. Over the past 42 years, the company’s dividend has grown more than 16-fold. If you had bought and held the stock over that time, the yield on your original investment would be more than 35% today.

More increases are almost certainly on the way as the company’s sales and earnings continue to climb. Thanks to the booming economy in western Canada, Canadian Utilities has one of the best growth profiles in the sector.

3. Canadian Pacific Railway Limited (TSX: CP)(NYSE: CP)

When Buffett is asked what the most important trait he looks for in a business is, his answer is always the same: an economic moat. Simply put, a moat is a competitive advantage that makes it difficult for rivals to compete.

No company illustrates this point better than Canadian Pacific Railway Limited. Even if you had $50 billion, chances are you couldn’t create a viable competitor to the company. The cost to secure right-of-ways, buy out landowners, and lobby for regulatory approval would be outrageous.

This creates a nearly impenetrable barrier to entry. With little in the way of direct competition, Canadian Pacific has been able to crank out earnings and dividends for investors year after year.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

More on Investing

Glass piggy bank
Dividend Stocks

New Investors: How to Make the RRSP Work for You Now and Not Just in Retirement

The RRSP can work for you in retirement, but it can also bring huge benefits right now for investors looking…

Read more »

Senior couple at the lake having a picnic
Dividend Stocks

Retirees: 2 High-Yielding Dividend Stocks to Buy Today

These TSX dividend-paying stocks can be a retiree’s best friend in their self-directed portfolios for additional income in retirement.

Read more »

money while you sleep
Dividend Stocks

2 Stable Stocks for Sleep-Better Investing

Boasting rock-solid underlying businesses and great financials, these two stable stocks can be perfect holdings for your portfolio.

Read more »

Money growing in soil , Business success concept.
Investing

3 Growth Stocks to Keep Your Eyes on

Growth stocks could make you lots of money, especially if you are able to buy them on sale and hold…

Read more »

Dividend Stocks

2 Dividend Stocks to Double Up on Right Now

After their recent declines, these two Canadian dividend stocks look even more attractive to buy for the long term.

Read more »

Young woman sat at laptop by a window
Investing

Should You Buy Savaria at These Levels?

Given Savaria's solid financials, healthy growth prospects, and attractive valuation, I am bullish on the company.

Read more »

A bull outlined against a field
Investing

These 3 High-Growth Stocks Could Power the Bull Market’s Next Record Run

Are you interested in high-growth stocks? These companies could power the bull market’s next record run!

Read more »

Male IT Specialist Holds Laptop and Discusses Work with Female Server Technician. They're Standing in Data Center, Rack Server Cabinet with Cloud Server Icon and Visualization
Tech Stocks

2 Top Tech Stocks Under $20 Per Share

Tech stocks are known for making millionaires. While it is difficult to identify them, these two tech stocks, each under…

Read more »