Hershey, Nike, and Walt Disney: 3 Companies for the Long-Term
Jan 21st 2014 5:30PM
Updated Jan 21st 2014 5:32PM
Riding out the ups and downs of the stock market over the long-term represents your best bet for superior returns on an investment especially during times of historically low interest rates. The best companies to invest in for the long term can stand the test of time and possess the financial resources to withstand down cycles and pay a dividend making it easier to wait for capital appreciation. Chocolate and sugar company Hershey , athletic footwear and apparel company Nike , and entertainment conglomerate Walt Disney represent companies that possess these qualities.
You probably couldn't think about candy bars without thinking of the name Hershey. The global company sells well known candy products such as the Hershey's bar and Kisses as well as the Reese's Pieces and peanut butter cups. It also sells Twizzlers, Jolly Ranchers, and Milk Duds according to its latest form 10-K. Its global ubiquity and market leadership allowed the company to grow its year to date revenue and free cash flow 6% and 5% respectively . In the most recent quarter, Hershey retained $700 million on its balance sheet or a little more than 51% of its stockholder's equity. Hershey returned 70% of its free cash flow back to its shareholders year to date. This payout ratio resides in the steep range; however, a large company such as this one has a difficult time finding expansion opportunities to invest in. As of this writing, Hershey paid its shareholders $1.94 per share per year for a yield of 2%.
The Nike swoosh checkmark probably represents one of the most recognized symbols in the world. Its portfolio of brands also include another iconic footwear brand Converse and the Jordan brand of "premium" footwear. Nike's other brands include sports related Hurley International that sells "surfing, skateboarding, youth lifestyle apparel, and footwear". In addition, Nike Golf sells gear related to golfing. Just about any time you see a sporting event you see Nike's name or iconic symbol somewhere on the television screen. Nike's year to date revenue expanded 8%. Nike's cash and short-term investments balance of $5 billion equates to 45% of stockholder's equity giving them plenty of financial flexibility for product innovation, expansion, and acquisitions. Like Hershey Nike pays out a huge 74% of its free cash flow in dividends due to its relatively limited business reinvestment opportunities due to its size. Nike's shareholders receive $0.96 per share per year giving it a 1.3% dividend yield.
The fantasy machine
Walt Disney possesses a huge portfolio of science fiction and fantasy characters. Most well-known for its traditional Mickey Mouse and Donald Duck characters, the Walt Disney universe includes Pixar Animation that produced iconic hits such as Cars, Toy Story, and Monster University. Moreover, Walt Disney also owns Marvel Entertainment which includes a universe of comic characters such as Iron Man, Thor, Hulk, and Avengers. In October 2012, Disney bought Lucasfilm which owns the Star Wars and Indiana Jones franchises. Disney can also leverage these characters and brands into theme park and cruise line experiences. Walt Disney grew its revenue and free cash flow an impressive 7% and 68% respectively last year. It paid out a frugal 19% of its free cash flow in dividends during that time. This year Walt Disney paid its shareholders $0.86 per share year equating to a 1.2% dividend yield.
Future growth for these companies will come from further product innovation/differentiation and expansion into new territories. Hershey's expects fiscal year 2013 revenue to expand 7% due to new products such as York Minis and Hershey's spreads in the United States and the international markets. Moreover, Hershey also teamed up with 3D Systems to investigate new ways to utilize 3-D printing to make candy with the Hershey's label. In the most recent quarter Nike reported the strongest revenue growth of 15% and 18% in Western Europe which is slowly recovering from a recession and the developing regions of Central and Eastern Europe respectively. The Nike brand also reports strong future orders coming in from those same regions. Walt Disney shareholders can look forward to continual renewed interests in the company brands via future motion picture releases such as Captain America: The Winter Soldier in 2014 and The Avengers: Age of Ultron and Star Wars Episode VII in 2015 . Hershey, Nike, and Walt Disney each deserve a spot in your long-term portfolio.
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The article Hershey, Nike, and Walt Disney: 3 Companies for the Long-Term originally appeared on Fool.com.William Bias owns shares of Walt Disney. The Motley Fool recommends 3D Systems, Nike, and Walt Disney. The Motley Fool owns shares of 3D Systems, Nike, and Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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