The Top Stocks of the Next 50 Years

Is it possible to determine the top-performing stocks of the next half-century? Before looking into the future, we need to consider the past. So let's start at the very beginning, as Julie Andrews might say.

Fishing in a well-stocked pond
Those familiar with the work of Wharton professor Jeremy Siegel will know that dividend-paying stocks such as Altria and Coca-Cola have been some of the stock market's best performers since the beginning of the S&P 500 back in 1957.

The key to the amazing returns of these stocks was reinvested dividends. This is a theme we've covered in many articles here at the Fool, but that insight is worth emphasizing. If we are searching for top stocks for a time frame of 50 years, we need to look at dividend-paying stocks.

One place to begin our search might be the Mergent Dividend Achievers Select Index, whose constituents are U.S.-listed companies that have all increased their annual dividend payments for 10 or more consecutive years. Since 1997, the index has returned 10% per year on average, which compares very favorably with the S&P 500's 7% over that time.

The magnificent seven
The index contains 216 dividend-paying companies. I've put together a sample of seven of them below:

Company

Dividend Yield

Chevron (NYSE: CVX)

2.6%

McDonald's (NYSE: MCD)

2.6%

Aqua America (NYSE: WTR)

2.3%

Meridian Bioscience (Nasdaq: VIVO)

1.5%

Archer Daniels Midland (NYSE: ADM)

1.3%

Target (NYSE: TGT)

1.1%

Lehman Brothers (NYSE: LEH)

1.0%

Most of these companies need no introduction. After all, who hasn't heard of Chevron, McDonald's, or Target? However, some of these names may be new to you.

Aqua America is the nation's largest publicly traded water and wastewater services company. That may not sound tremendously exciting, but consider that Aqua America is rapidly adding customers to its ranks via acquisitions, and the company has paid an uninterrupted dividend for more than 61 years.

If Aqua America doesn't float your boat, consider Meridian Bioscience, a rapidly growing small cap that makes innovative diagnostic test kits for hospitals and labs in 60 countries. Net income has nearly tripled in the past three years, and analysts expect the company to grow at a 27.5% annual clip for the next five years.

Will any of these be among the top stocks of the next 50 years? It's tough to say for sure, though I do believe one or two will make the list.

Looking ahead
So, to recap: If history is any indication, the top stocks of the next 50 years will be businesses that have stable, growing dividends; reasonable valuations (part of the reason for Altria's outperformance, Siegel says, is that the constant threat of litigation meant it was always undervalued); and good managers.

Even if you find a top stock of the next 50 years, the only way you'll benefit from those potential gains is to hold for the long term and let the power of reinvested dividends work in your favor.

© 2007 Universal Press Syndicate