Best Long-Term Investment Stocks to Buy (2024)

Best Long-Term Investment Stocks to Buy (1)

By Mark R. Hake, CFA

last updated

Folks seeking out the best long-term investment stocks to buy have a few ways to approach the task. One is to follow the advice of Benjamin Graham, the father of value investing, using his classic book, The Intelligent Investor.

In what is arguably one of the best books on investing, Graham suggests that a defensive investor should buy stocks of large, conservatively financed companies with good earnings power. The companies should also be some of the best dividend stocks, with consistent histories of payouts, and have low valuations.

However, in today's world, many tech stocks don't pay dividends. Instead, they often return capital to shareholders through large stock buybacks.

Therefore, applying Graham's criteria today, the idea is to find the best stocks to buy that return large amounts of capital to shareholders either through dividends and/or stock buybacks.

This allows a company to increase its earnings and dividends on a per-share basis. Moreover, the remaining shareholder's stakes rise over time. Both of these factors can push the stock higher.

Another Graham criteria is to find stocks with a low valuation. The S&P 500 has a relatively high price-to-earnings (P/E) ratio of 31.4 times over the last 10 years. This article will focus on stocks with price-to-earnings ratios that are lower than the broad market.

Lastly, we will stick with stocks that have market caps of $100 billion or higher. They must also have low debt ratios and enough cash flow to reduce their debt, as well as pay dividends and/or buybacks.

With this in mind, here are the nine of the best long-term investment stocks to buy now.

Data is as of November 29. Dividend yields are calculated by annualizing the most recent payout and dividing by the share price.

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Apple

  • Market value: $2.94 trillion
  • Dividend yield: 0.5%

Apple (AAPL, $189.37) is the nearly $3 trillion maker of iPhone smartphones, Mac computers, iPads and numerous other products and services.

iPhones still represent over half of the company's sales, but recently services, which includes the App Store, have started to increase as well. For example, in its latest fiscal year ending September 30, Apple's services revenue came in at a $85.2 billion, or 22% of its $383.3 billion in sales. That is up from 20% a year ago.

So, this massive tech products company is slowly shedding its overreliance on the iPhone, whose models are all very highly priced. While this will take time, the market so far approves of this plan.

And why not? The company is generating massive amounts of free cash flow (FCF), which is the money left over after a company covers expenses to run, maintain and expand the business. In its recently completed fiscal year, Apple generated strong operating cash flow of $110.5 billion, while returning over $92 billion to shareholders.

Apple pays a small dividend, which it recently raised by 4% to 96 cents annually. That gives the stock a low 0.5% dividend yield. However, this cost the company just $15 billion, or 13% of its operating flow.

The rest of the $77 billion "returned" to shareholders was through stock buybacks. In fact, Apple raised the amount it says it will spend this year on share repurchases to $90 billion. That represents over 3.0% of its total market value.

This will benefit long-term shareholders in Apple stock. First, it will raise AAPL's earnings per share over time through having a lower number of shares outstanding for the income it produces.

But in addition, the dividend per share can rise faster than it would otherwise since the dividend payments will be spread over fewer number of shares outstanding. And a third effect will be the soaking up of shares traded in the market – effectively acting as a buying source in the market, pushing the blue chip stock higher.

Keep in mind that APPL stock is not overly cheap at the moment, at 28.7 times forward earnings – above its five-year average of 24.3, according to Morningstar. However, it is about below the S&P 500's average, as mentioned earlier.

Nevertheless, Apple remains one of the best long-term investment stocks due to its consistent and powerful cash flow, dividends and buybacks.

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Chevron

  • Market value: $271.7 billion
  • Dividend yield: 4.2%

Chevron (CVX, $143.91) is an integrated energy and chemicals company with both upstream and downstream operations in the U.S. and around the world.

CVX meets the criteria for a good long-term investment as it is conservatively financed, produces good profits and pays an attractive dividend it can afford. Moreover, CVX stock is not expensive and the company is actively buying back shares, helping to push it higher.

For example, analysts expect Chevron to make $13.29 per share in fiscal 2024, which has the energy stock trading at 10.8 times forward earnings. This is well below the five-year average of 39.8 times.

Moreover, Chevron has 36 years of annual dividend hikes under its belt. This is because despite vicissitudes in the prices of oil and gas and chemical industry cycles, the company has consistently produced large amounts of free cash flow.

For example, in Q3, Chevron generated $9.7 billion in operating cash flow before working capital changes, and $5.0 billion in free cash flow. The company spent $2.9 billion on dividends and $3.4 billion on share buybacks, for $6.3 billion in total shareholder returns.

This shows how Chevron manages a fair balance between investing in the future, as well as rewarding its own shareholders now with its cash flow. And it underscores why CVX is the kind of stock that long-term investors want to have in their portfolio.

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Microsoft

  • Market value: $2.81 trillion
  • Dividend yield: 0.8%

Microsoft (MSFT, $378.85) operates in every key software arena: operating systems, cloud, gaming, application software, and, even more notable these days, artificial intelligence (AI) with its new Bing chatbot and massive investment in OpenAI.

MSFT meets all the necessary qualities for being one of the best long-term investment stocks as it has consistent earnings, is conservatively financed and generates large amounts of free cash flow. Moreover, it pays a dividend and spends most of its FCF on share buybacks.

Just like Apple, however, MSFT stock is not necessarily cheap on a relative or even historical basis. For example, Microsoft is trading at 30.4 times forward earnings, which is above its five-year average of 28.8. Still, it's below the S&P 500's long-term average.

And long-term investors are likely to do quite well with MSFT. The reasons are quite simple: The company's massive cash flow, its products ubiquity and acceptance, and its shareholder rewards are all working in the stock's favor.

For example, Microsoft recently reported a 27% year-over-year increase in fiscal first-quarter earnings per share, while revenue was up 13%. Plus, free cash flow was up 22% from the year prior.

But more importantly, the company has plenty of room to increase its shareholder-friendly initiatives over time. This is because it spends just about half its free cash flow on dividends and buybacks. It plows the rest back into the company, reducing debt and making investments and acquisitions.

So, in the long run, Microsoft shareholders can expect the company to typically grow profits and cash flow, while consistently hiking its dividends and buybacks. In fact, Microsoft has had 19 consecutive years of raising its dividend. That alone, not counting its buybacks and earnings power, makes the Dow Jones stock worthy of holding as a long-term investment.

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Charles Schwab

  • Market value: $111.2 billion
  • Dividend yield: 1.7%

Charles Schwab (SCHW, $59.61) is a well-known discount brokerage firm and investment banking company with which many baby boomers are familiar.

SCHW meets all the best criteria for a long-term investment value strategy. For example, it is conservatively financed, pays a consistent dividend with a 1.7% yield, and has a low valuation.

As for that dividend, Schwab has had 34 years of consistently paying its dividend each year. That is well over the 10-year average of the median in its sector.

Moreover, Schwab recently reported that its return on equity was 18% in the nine months ended September 20, inline with the year-ago period. This indicates steadiness in its earnings power. It also allays concerns that the bank might have been hurt by investors worried about a potential recession.

Meanwhile, the financial stock is trading at 17.2 times forward earnings, well below its five-year average of 18.6.

While the company did decide earlier this year to pause its share buyback program in light of uncertainty in the financial sector following the spring banking crisis. This is likely to reverse once the Federal Reserve finally stops pushing interest rates higher, which could act as a major catalyst.

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Medtronic

  • Market value: $104.9 billion
  • Dividend yield: 3.5%

Medtronic (MDT, $78.86) is a $105 billion medical device and therapies company that originally invented the pacemaker. That is probably relatable to folks looking for the best retirement stocks. Moreover, the company is extremely profitable, which allows it to pay generous dividends and do large share buybacks.

Right now, MDT stock has a 3.5% dividend yield. And this yield will likely continue to rise, given the company has reliably raised its dividend for 46 straight years – including a 1.5% hike in May.

Moreover, in fiscal 2023, which ended on April 28, Medtronic bought back $645 million of its shares. That works out to be about just a small portion of its market cap, but every little bit helps towards allowing the company to keep raising its dividend.

In addition, at just 17.1 times forward earnings, the stock is inexpensive. What's more, this is well below MDT's five-year average of 19.1 times, according to Morningstar.

Meanwhile, Medtronic has about $16 billion in net debt on its balance sheet. This is well below its $51.5 billion in shareholders' equity. Its cash flow should continue to recover from supply chain issues we've seen in the past few years. That will allow Medtronic to reduce its debt reliance over time.

And given its powerful cash flow and shareholder returns, MDT is one of the best long-term investment stocks.

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McDonald's

  • Market value: $203.4 billion
  • Dividend yield: 2.4%

McDonald's (MCD, $278.71) is a company that just about every investor knows well, especially if they have children. But few realize that it is actually quite a good long-term investment stock to buy as well.

The main reason is that the company generates large amounts of free cash flow. For example, in the last 12 months (LTM) ending September 30, MCD produced $7.2 billion in FCF. That represents 3.5% of its $200 billion market capitalization.

MCD uses its free cash flow to pay a very ample dividend, which now yields 2.4%. In addition, it bought back almost $3 billion of its shares over the last year.

While some folks might not like MCD's quick service restaurant food, plenty of others do. They love its menu, buy McDonald's fries and hamburgers and generally can't get enough of its food.

Moreover, it is conservatively financed as its $37 billion in long-term debt, $30 billion after cash, is well-managed by the company's ongoing FCF generation.

In addition, shareholders have benefited by its history of annually raising its dividend over the last 47 years.

Along with its buybacks, MCD stock is attractively valued. For example, it trades for just 24.7 times earnings. While certainly not cheap, it is below the five-year average of 28.6.

The bottom line – everyone is "lovin" MCD stock for the long term.

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Procter & Gamble

  • Market value: $356.2 billion
  • Dividend yield: 2.5%

Procter & Gamble (PG, $151.13) is a nearly $360 billion consumer products giant with many iconic brand names – including Downy detergent, Mr. Clean cleaning supplies and Head & Shoulders shampoo – that produce large amounts of cash flow for the company.

Most everyone knows Procter & Gamble's brands and are familiar with their solid reputations. But few realize how incredibly profitable the company actually is and why PG is one of the best long-term investment stocks to buy.

For example, in the last 12 months ended June 30, PG generated $17.7 billion in operating cash and, after $3.1 billion in capex spending, $14.6 billion in free cash flow.

The FCF represents a massive 21% of P&G's $81.3 billion LTM sales, which is a very high free cash flow margin for a consumer products company. In fact, some software companies don't even make those kinds of margins.

Moreover, this FCF also funds massive dividends and buybacks for shareholders. The company has raised its dividend annually for the last 67 years. Moreover, in its recent earnings call, Procter and Gamble management said it expects to buy back $7 billion to $9 billion in common stock this fiscal year. That represents about 2.2% of its current market capitalization.

Nevertheless, PG is not expensive relative to its historical valuation. It trades for just 24.5 times earnings, which is well below its five-year average of 35.1.

In other words, Procter & Gamble is reasonably priced, generates large amounts of cash flow from its brands and is working diligently to return value to shareholders. That makes it one of the best long-term investments value buyers can make.

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3M

  • Market value: $54.4 billion
  • Dividend yield: 6.1%

3M (MMM, $98.47) is a $54 billion industrial conglomerate that operates in four sectors: safety and industrial; transportation and electronics; healthcare; and consumer. The company's mission is to apply science to improve people's lives daily.

But MMM is also one of the best long-term investment stocks for folks to own. For example, 3M generated $1.9 billion in free cash flow in the third quarter, and returned $828 million to shareholders via dividends.

On top of that, 3M buys back its common stock, with the company repurchasing $1.4 billion of its own shares in 2022.

Given its free cash flow, investors can take comfort in knowing that MMM's $6.00 annual dividend, which yields an attractive 6.1%, is probably secure.

Plus, 3M stock is cheap, trading at just 11.6 times forward earnings, well below its five-year average of 16.4.

Moreover, 3M is conservatively financed. The company reported $10.8 billion in net debt at the end of Q3, which was down 11% on a year-over-year basis.

Given its strong cash flow, dividends, buybacks, low valuation and financing, the industrial stock looks like a good long-term investment for value buyers.

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Best Long-Term Investment Stocks to Buy (18)

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Coca-Cola

  • Market value: $251.8 billion
  • Dividend yield: 3.2%

Coca-Cola (KO, $57.77) is an iconic beverage company that generates large amounts of cash flow for its shareholders with its well-known brands such as Coke, Diet Coke, Fanta, Powerade and Minute Maid.

That makes it one of the best long term investments a value buyer can make – just ask Warren Buffett, whose Berkshire Hathaway (BRK.B) holding company is KO's top shareholder. What makes KO so attractive is that it is one of the best dividend stocks on Wall Street, having increased its payouts consistently for the last 61 years straight. Most recently, Coca-Cola in February hiked its dividend by nearly 5%.

Today, KO stock yields an attractive 3.2%, and investors can expect the dividend rate to keep increasing.

On top of that, Coca-Cola has a strong common stock buyback program. For example, in the first nine months of its fiscal year, it spent $769 million on share repurchases. That represents 0.3% of its current market value.

KO's dividends and share buybacks are more than covered by $9.5 billion in FCF that management expects to generate during 2023.

So, for the long term-investor, this consumer staples stock looks like a good investment, given its strong cash flows and shareholder-friendly initiatives.

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Mark R. Hake, CFA

Contributing writer, Kiplinger

Mark R. Hake, CFA, is a Chartered Financial Analyst and entrepreneur. He has been writing on stocks for over six years and has also owned his own investment management and research firms focused on U.S. and international value stocks, for over 10 years. In addition, he worked on the buy side for investment firms, hedge funds, and investment divisions of insurance companies for the past 36 years. Lately, he is also working as Chief Strategy Officer for a tech start-up company, Foldstar Inc, based in Princeton, New Jersey.

As a seasoned financial analyst with extensive experience in investment management and research, I can provide valuable insights into the concepts discussed in the article by Mark R. Hake, CFA, last updated on November 30, 2023. My expertise allows me to dissect and elaborate on the key elements mentioned in the article regarding long-term investment stocks. Let's delve into the details:

  1. Benjamin Graham's Approach:

    • Mark R. Hake suggests following the principles of Benjamin Graham, the father of value investing, outlined in his classic book, "The Intelligent Investor."
    • Graham's criteria for a defensive investor include buying stocks of large, conservatively financed companies with good earnings power.
  2. Criteria for Long-Term Investment Stocks:

    • Focus on companies with a history of returning capital to shareholders through dividends and/or stock buybacks.
    • Emphasize stocks with low valuations, considering the relatively high price-to-earnings (P/E) ratio of the S&P 500.
    • Target companies with market caps of $100 billion or higher, low debt ratios, and sufficient cash flow to reduce debt while paying dividends and/or conducting buybacks.
  3. Selected Long-Term Investment Stocks:

    • Apple (AAPL):

      • Market value: $2.94 trillion
      • Dividend yield: 0.5%
      • Shift from iPhone reliance to services, generating substantial free cash flow and returning capital to shareholders through dividends and buybacks.
    • Chevron (CVX):

      • Market value: $271.7 billion
      • Dividend yield: 4.2%
      • Consistently profitable, conservatively financed, and actively buying back shares, with 36 years of annual dividend hikes.
    • Microsoft (MSFT):

      • Market value: $2.81 trillion
      • Dividend yield: 0.8%
      • Diversified operations, consistent earnings, large free cash flow, and shareholder-friendly initiatives through dividends and buybacks.
    • Charles Schwab (SCHW):

      • Market value: $111.2 billion
      • Dividend yield: 1.7%
      • Well-known discount brokerage firm, conservatively financed, with a history of paying dividends and a reasonable valuation.
    • Medtronic (MDT):

      • Market value: $104.9 billion
      • Dividend yield: 3.5%
      • Profitable medical device company with a history of dividend increases, share buybacks, and an inexpensive valuation.
    • McDonald's (MCD):

      • Market value: $203.4 billion
      • Dividend yield: 2.4%
      • Generates significant free cash flow, pays ample dividends, and conducts share buybacks, making it an attractive long-term investment.
    • Procter & Gamble (PG):

      • Market value: $356.2 billion
      • Dividend yield: 2.5%
      • Consumer products giant with iconic brands, high cash flow margins, consistent dividend increases, and shareholder value creation through buybacks.
    • 3M (MMM):

      • Market value: $54.4 billion
      • Dividend yield: 6.1%
      • Industrial conglomerate with strong free cash flow, dividends, and share buybacks, coupled with a low valuation.
    • Coca-Cola (KO):

      • Market value: $251.8 billion
      • Dividend yield: 3.2%
      • Iconic beverage company with a long history of dividend increases, share buybacks, and strong cash flows.
  4. Conclusion:

    • Each selected stock aligns with the criteria for long-term investments, considering factors such as financial stability, consistent earnings, and shareholder-friendly practices.

In summary, the article provides a comprehensive overview of long-term investment strategies and highlights specific stocks that meet the outlined criteria for prudent investors.

Best Long-Term Investment Stocks to Buy (2024)

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