Like most serious investors, I'm a big fan of Warren Buffett. That's why I do my best to take his advice seriously. So when the Oracle of Omaha says that his "favorite holding period is forever," I make sure to fill my portfolio with stocks I never plan on selling.
Three such companies are Brookfield Renewable Partners (NYSE: BEP), NextEra Energy (NYSE: NEE), and Brookfield Infrastructure Partners (NYSE: BIP). Here's why I could see holding each one for the rest of my life.
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Rivers of cash flow
Brookfield Renewable Partners is one of the world's largest renewable power-generating companies. While Brookfield focuses on hydropower, it also operates wind, solar, and energy storage facilities.
The company primarily sells the power it produces under long-term contracts to utilities and other end users to lock in pricing. These agreements provide Brookfield Renewable with steady cash flow. The company distributes the bulk of this money to investors via a dividend that currently yields 6.2%.
Meanwhile, Brookfield uses the cash it retains, its strong balance sheet, and select asset sales to invest in expanding its portfolio. Add those investments to the inflation-related growth baked into its existing contracts and its upside to higher future power prices, and Brookfield Renewable anticipates that it can expand cash flow by 6% to 11% annually. That should support 5% to 9% yearly dividend growth.
That combination of income and growth should enable the company to continue generating market-beating returns, which it has done by a significant margin since its inception. Couple that with a massive opportunity for renewables, and Brookfield Renewable Partners looks like a forever holding to me.
The clean-energy leader
NextEra Energy is not only one of the largest utilities in the U.S., but the global leader in producing power from the wind and sun. That lead should increase over the next few years since the company is in the process of investing $40 billion in expanding its portfolio.
One thing that stands out about NextEra is that its investments move the needle for investors. Since 2005, the company has grown its earnings at an 8.5% annual pace, which has vastly outperformed the meager 3% yearly growth rate of its peers over that time frame. That fast-paced growth, when coupled with NextEra's attractive dividend that currently yields 2.7%, has enabled the company to outperform 86% of the companies in the S&P 500 over that period.
That outperformance appears poised to continue because the company keeps making bold bets on both renewables and energy storage. Add in its investments in natural-gas pipelines and electricity transmission, as well as its ability to acquire assets, and NextEra Energy should have the power to grow earnings by a 6% to 8% annual rate for the next several years. That should support continued dividend increases, which could give it the power to continue outperforming.
Built for the long haul
Brookfield Infrastructure Partners operates one of the largest portfolios of critical global infrastructure assets. This sibling of Brookfield Renewable focuses on operating transportation assets (toll roads, ports, and railways), energy businesses (pipelines and utilities), and data infrastructure (communications towers and data centers). Most of its operations generate steady cash flow either backed by fee-based contracts or predictable volumes. That enables the company to pay an attractive distribution that currently yields 4.9%.
Brookfield Infrastructure, like its sibling, uses a combination of the cash it retains, its strong balance sheet, and targeted asset sales to give it the funds to invest in growing its portfolio. Combine that with inflation escalators embedded in its legacy contracts and volume growth as the global economy expands, and Brookfield expects earnings to increase at a 6% to 9% yearly pace. That should support 5% to 9% annual growth in distributions to investors.
Brookfield's ability to increase both cash flow and its dividend at a steady pace has enabled it to outperform the market by a wide margin since its inception. This trend appears poised to continue, especially given the company's focus on operating mission-critical infrastructure, which will remain an area of need for decades to come. That makes it worth holding for the long haul.
Everything I look for in forever stocks
Brookfield Renewable, Brookfield Infrastructure, and NextEra Energy have all the characteristics I want in a long-term holding. They each operate in industries that should be around in the decades ahead. Further, they have rock-solid financial profiles, which gives them the ability to pay generous dividends while expanding their operations.
This combination of factors should enable these companies to generate market-beating returns over the long haul. That potential for sustained outsized returns is why I don't plan on selling these stocks.
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Matthew DiLallo owns shares of Brookfield Infrastructure Partners, Brookfield Renewable Energy Partners, and NextEra Energy. The Motley Fool recommends Brookfield Infrastructure Partners and NextEra Energy. The Motley Fool has a disclosure policy.