Small squeezes are the latest fad for quick enrichment that catches the attention of the investor community. Hedge funds that have sold popular shares short are being burned as small investors come together to force them to hedge their positions, sending the stock prices in an exaggerated run. While some speculators made quick money in and out of these negotiations, others were badly burned.
However, since you only live once, it makes no sense to bet everything on a stock trade that could end in financial ruin. That’s why we like to invest in companies that are highly likely to enrich their investors in the long run. Three wealth creators that our employees think offer a much better risk / reward profile than the current craze for tight stocks are the giant of global infrastructure Brookfield Infrastructure (NYSE: BIP)(NYSE: BIPC), Utility Edison Consolidated (NYSE: ED), and garbage truck Waste Connections (NYSE: WCN).
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A long history of enriching your investors
Matt DiLallo (Brookfield Infrastructure): Brookfield Infrastructure may not have the short-term advantage of a stock stuck in the sights of a short squeeze. However, the global infrastructure giant has done an exceptional job, enriching its investors in the long run. Since its creation in early 2008, the company has generated an annualized total return of 18%. This totally obliterated the broader market such as the S&P 500The company’s total annualized return during this period is 10%. To put Brookfield’s returns in perspective, an investment of $ 10,000 in its formation would be worth more than $ 80,000 today.
Fueling the company’s strong total returns over the years has been its ability to increase its cash flow and dividend at compound annual rates above the average of 16% and 11%, respectively. Boosting this strong growth rate has been Brookfield’s strategy of acquiring infrastructure businesses with stable cash flow, which it continually expands through additional purchases and organic expansion projects. The company estimates that only its built-in organic growth will boost its cash flow per share at an annual rate of 6% to 9% in the coming years. In the meantime, additional acquisitions can add an increase of 1% to 5% to your financial results each year. These dual-growth engines will provide the company with the fuel to continue increasing its 3.8% –yielding dividend at an annual rate of 5% to 9% in the coming years. Thus, Brookfield has a high probability of continuing to enrich its investors, generating total returns above the market.
A slow and steady turtle
Reuben Gregg Brewer (Consolidated Edison): If current market fluctuations make you think of irrational exuberance, then what better place to turn than a boring utility like Consolidated Edison. Con Ed’s business is centered in and around New York City, which is a densely populated region with a cultural appeal that few places in the world can match. The global pandemic has dulled that benefit today, but if history is any guide, the Big Apple will eventually return to its former glory. In the meantime, investors can achieve a 4.4% yield, which is close to the upper limit of Con Ed’s recent historic range.
ED Dividend Yield data by YCharts
What is also exciting, in a perverse way, is that Con Ed’s business is highly regulated. He needs to have his spending plans and tax increases approved by the government and, in return, he has a monopoly in the regions he serves. This limits growth, but it also means that your capital spending plans are practically stalled and will occur regardless of stock market swings. At this point, the concessionaire plans to spend around $ 4 billion a year for the next two years, supporting a projected base rate growth of around 5% per year.
Yes, Con Ed is a boring company, but that’s how this Dividend Aristocrat managed to tie 46 years of annual dividend increases. And, really, doesn’t that look very good at a time when the market looks like it’s going to rock bottom?
A surprisingly good stock to own at all times
Neha Chamaria (waste connections): As a long-term investor, you can choose risky stocks and prepare to withstand volatility, or play it safe and buy some stocks that will grow even in difficult times. For example, how about a waste management stock like Waste Connections? Wait, you may want to first see the performance of that stock over the past decade.
WCN data by YCharts
Surely, you wouldn’t expect a yawning-inducing stock to have more than quintupled in 10 years, would you? This is where a resilient business model and consistent dividend growth comes into play. Waste Connections collects, discards and recycles waste, none of which is affected by economic cycles. This, combined with the company’s acquisitive growth strategy, has ensured steady growth in revenue and cash flow over the years.
2020, for example, was a challenging year for almost all companies, as the blockages induced by the COVID-19 pandemic paralyzed operations. Still, Waste Connections’ revenue improved marginally by 0.5% during the nine months through September 30, 2020. Although depreciation expenses reached their end result, their adjusted net revenue fell only about 4% year over year .
More importantly, Waste Connections increased its quarterly dividend by 10.8% in October 2020, marking its 10th consecutive year of annual dividend increases.
As the impact of the pandemic on companies is expected to diminish this year, I hope Waste Connections will offer an encouraging outlook for 2021 when it releases its 2020 numbers in mid-February. In addition, pay attention to management’s capital spending plans, as acquisitions are likely to continue to be an important value generator for the company. As earnings and cash flow grow, dividends are also expected to grow, making Waste Connections a really good thing to buy and forget for years.