How will Berkshire Hathaway (NYSE: BRK-B) look 50 years from now? That’s hard to answer, but if you were at the Berkshire annual shareholder meeting this past weekend, you’ll know that Warren Buffett thinks it will be much the same.
Buffett has worked hard over the last 50 years to install a culture that he can be proud of. He noted at the annual meeting that the culture at Berkshire is “clearly defined,” “deeply embedded” and will “become even stronger.”
“Culture is everything at Berkshire,” Buffett said.
And what is that culture exactly? It starts with having a knack for investing in great companies. Since Buffett started buying up shares of Berkshire Hathaway some 50 years ago, its stock price is up more than 2,800,00%.
But digging deeper, one of Buffett’s best-known investing philosophies is to invest in wide-moat businesses – i.e., companies that enjoy sustainable competitive advantages. Most notably, this includes investing in companies whose futures can be reasonably predicted several decades out.
Buffett spent half a century building a wide-moat culture, so it seems logical that Berkshire will continue on its current path. And the real beauty of companies that have wide moats is that they can consistently reward shareholders with dividends.
Here are three key stocks that Berkshire Hathaway could easily own long after Warren Buffett’s retirement:
Berkshire Hathaway Forever Stock No. 1: Coca-Cola (NYSE: KO)
Coca-Cola has taken a lot of heat from Wall Street and the media (myself included), given consumers’ shift away from soft drinks to “healthier” alternatives. Yet Buffett doesn’t care, and thinks that it will be a solid investment for decades to come.
It’s Berkshire’s second largest public equity holding and has remained a core holding for well over the last half decade. Buffett’s company owns over 9% of the soft drink maker.
Part of Coca-Cola’s moat is derived from the fact that it’s the leading soft drink manufacturer in the world. And there’s a lot to be said for Coca-Cola’s brand name, which extends beyond soda. As Buffett noted at the Berkshire meeting, Coca-Cola’s products make people smile.
“I don’t see smiles on the faces of people at Whole Foods, so I like the brands we’re buying,” he said.
Let us not forget about Coca-Cola’s 3.2% dividend yield, with the real beauty being that it has managed to increase its dividend for 52 straight years.
Berkshire Hathaway Forever Stock No. 2: Suncor Energy (NYSE: SU)
This pick is less obvious, as it makes up a small portion of Berkshire’s public equity portfolio. Yet Berkshire upped its shares owned by 20% during the fourth quarter of last year, and also increased its stake in the two quarters prior to that.
Buffett has had a love-hate relationship of sorts with oil stocks. He was a major investor in both Exxon Mobil (NYSE: XOM) and ConocoPhillips (NYSE: COP), before selling both over the last year or so.
Now, at the latest Berkshire meeting, Buffett noted that he has no plans to buy an oil and gas stock anytime soon. However, he still loves energy – nearly 10% of Berkshire’s operating revenue is derived from its Berkshire Energy unit. And Buffett loves buying wide-moat stocks at a discount. Suncor has fallen nearly 25% from its 52-week high.
Earlier this year I wrote about the appeal of one of Buffett’s energy stocks, Phillips 66 (NYSE: PSX), but as a Canadian oil player Suncor is a bit different.
Suncor’s moat comes from the fact that it has fully connected its downstream assets with oil sands production, thus maximizing margins and pricing. The other key is that its assets of oil sands don’t suffer the same decline in production as other assets, such as shale. So the company has several years of “visible” cash flow production, which becomes even more visible when you consider the fact that there’s virtually no exploration risk in the mining of sand.
Suncor offers a hefty 3.5% dividend yield and has a three-year streak of consecutive dividend increases.
Berkshire Hathaway Forever Stock No. 3: American Express (NYSE: AXP)
American Express is Berkshire’s third largest holding as of the end of 2014. It currently owns 150 million shares, or roughly 15% of the large credit card company.
Much like Berkshire’s Coca-Cola holding, American Express has a strong reputation. It’s taken a lot of heat of late because of the failed renewal of its exclusive credit card contract with Costco (NASDAQ: COST). Even still, it has a strong base of affluent cardholders who are less susceptible to economic downturns.
One of the big worries for AmEx is that mobile payments will cut into its market share. At the Berkshire meeting, Buffett noted that he thought AmEx wouldn’t have any troubles adapting, pointing to the loyalty of the company’s cardholders. After all, it started out as an express company and transformed into a credit card company.
Don’t be fooled by American Express’ seemingly low 1.3% dividend yield, as it’s just a 20% payout of earnings. That leaves plenty of room for additional increases, and it’s upped its dividend for three straight years now.
Who knows what will happen after Buffett retires. But as investors, the key is to take a Buffett-style approach and invest in companies that will still be relevant in 20 or 30 years. The three companies listed above are solid places to start.
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