The idea behind a foundation stock is that you feel comfortable putting a significant portion of your investments in a relatively small basket of them. These are stocks that have been around for the long haul, ideally having a track record of paying and raising dividends and earnings in any economic environment. Most of the companies below have 25+ year track records of dividend increases. Those that don’t are titans of industry. Together many of them would comprise a significant portion of the major stock market index funds.
One point to make is that while I’d be comfortable owning and holding all of the stocks below, you should pay attention to the valuation they are currently trading at. In general I prefer to buy when their forward P/E is in the 15-20x zone. Unless a particular company is consistently growing earnings in the mid double digits I start to shy away once the P/E ratio gets above 25. The reason for this is you are going to handicap your returns in even great companies if you pay too much of a premium. It’s hard enough to pick a company that is going to do well for 10+ years. There’s no need to make it harder by overpaying and guaranteeing mediocre returns even if the company does succeed. The exception to this rule is if a company has shown it can consistently grow earnings in the mid double digits. There are very few companies out there that can do that over a 5 year period, much less a longer time frame. The reason for that is when people see that kind of growth, competition inevitably creeps in. Companies like Sherwin Williams and Visa have shown they have the moat to justify paying a higher price because they have consistently grown earnings in the double digits.
With that caveat aside here is my list of 30 stocks I’d be comfortable holding for the next 30 years. I’d be willing to wager that most groupings of these stocks will outperform the market as a whole over the long term, with dividends reinvested. You’ll notice that most of these companies have long established histories of paying and increasing dividends year after year, even during recessions. You’ll also notice a lack of banking stocks in the list. While I do think it is a good idea to own some financials, especially during periods of rising rates, their tendency to overextend, get too greedy, and collapse every 15 years or so stops me from including them in a list of foundation stocks.
Apple
Berkshire-Hathaway
Disney
Coca-Cola
PepsiCo
McKormick
AT&T
Aqua America
Becton Dickinson
Johnson & Johnson
Nike
Hanesbrands
Diageo
Anheuser-Busch Inbev
Proctor & Gamble
Exxon Mobil
Reality Income
Sherwin-Williams
Visa
McDonalds
Chevron
Kraft-Heinz
Nestle
United Technologies
3M Company
Aflac
Walgreens
Colgate-Palmolive
Altria