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“Coffee Can” Portfolio: 5 Dividend Stocks to Own Forever

Published Tue, 16 Oct 2018 12:24:28 on Income Investors

These Stocks Yield Up to 13%
In a 1980s paper, portfolio manager Robert Kirby coined the term “coffee-can portfolio.” The idea harkens back to the Old West, when people would store their valuable possessions in a coffee can and not touch them for a long time.
You can apply the same idea to the stock market: assemble a portfolio of the world’s best businesses and stash them away for a long time. Kirby proposed 10 years as a good period.
The genius lies in its simplicity. By ignoring the daily ups and downs of the financial market, we protect ourselves from our own vices, like impatience, boredom, and the herd mentality.
“You can make more money being passively active than actively passive.” Kirby wrote. “[But] the success of the program depended entirely on the wisdom and foresight used to select the objects to be placed in the coffee can to begin with.” (Source: “The Coffee Can Portfolio,” The Journal of Portfolio Management, 1984.)
Kirby’s philosophy aligns completely with the approach I talk about here on Income Investors: buy some wonderful businesses, stash the certificates in a drawer, and collect the dividends for the rest of your life. It’s an inspiring story where inactivity beats industriousness. And if you appreciate the true value of Kirby’s paper, you’ll beat 99% of your fellow investors.
In that same spirit, I wanted to help readers start their own “coffee can” portfolio. Below I’ve highlighted timeless businesses which you could own for the rest of your life. I’ve selected these stocks based on their outstanding track records, entrenched market position, and potential dividend income.
Now to be clear, the table below doesn’t represent a list of buy recommendations. Some of these stocks look expensive and don’t present a good place to put fresh money to work—at least, not right this second. All five, however, boast long dividend histories and deserve a place on any income investor’s watchlist.
Company
Market Cap
Yield
CSX Corporation $60.9B
1.3%
Union Pacific Corporation $112.8B
2.1%
The Hershey Company $22.0B
2.8%
BCE Inc. $35.7B
5.8%
Enbridge Energy Partners, L.P. $4.8B
13.0%
Source: Yahoo! Finance
Let’s say a few words about these stocks.
Railroads represent a truly irreplaceable asset. Companies laid down most of these lines over a century ago, back when land cost pennies an acre. Today, cities and towns have sprung up along these routes. Even if you could get the rights-of-way needed to build a competing railroad, it would cost hundreds of billions of dollars to buy out existing landowners. This barrier to entry keeps new rivals out and profits fat.
For shareholders, this has translated into a growing stream of income. CSX Corporation (NYSE: CSX) and Union Pacific Corporation (NYSE: UNP) have paid out dividends for decades. And because rail presents the cheapest way of moving freight over long distances, they’re pretty much guaranteed a piece of the transportation business.
For decades, kids have enjoyed sweets from Hershey Co (NYSE: HSY) in their Halloween baskets. What’s less well-known is that the chocolate giant has also handed out plenty of treats for shareholders. Thanks to a combination of rising sales and profits, Hershey has boosted its dividend at a nine-percent compounded annual clip over the past 10 years. Through that period, the payout has more than tripled. And lately, those bumps have gotten even bigger: the most recent boost in August topped more than 10%, a sign that its management sees more good things ahead.
Canadian telecom giant BCE Inc. (NYSE: BCE) owns a license to print money. It would cost billions to replicate the company’s wireless and Internet broadband network, and even if you could cough up that kind of dough, government regulations keep foreign competitors out of the country. As a result of this lack of competition, Canadians pay some of the highest prices for telecom services in the world—bad news for consumers, but great news for shareholders. Thanks to the company’s entrenched market position, it pays out one of the most lucrative dividends in the stock market.
The story looks pretty similar at Enbridge Energy Partners, L.P. (NYSE: EEP). The partnership owns thousands of miles of pipelines, moving oil and gas across the country. Rather than betting on energy prices, management is content to earn a fee on each barrel of crude shipped or stored through its network. This results in a steady stream of income that resembles bond coupons. Better still, the high upfront cost of building new routes keeps most competitors out of the business. Enbridge faces little in the way of direct competition, which allows management to change large, growing fees for the company’s services year after year.
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Stock name Last trade   P/E Earnings/Share Dividend/Share Dividend yield
ENBRIDGE ENERGY PARTNERS LP 10.79   21.6 0.50 1.40 13.35
BCE 48.67   19.8 2.46 2.38 4.91
UNION PACIFIC 167.71   19.9 8.42 3.88 2.32
HERSHEY 151.26   26.2 5.78 3.09 2.03
CSX 71.55   17.2 4.16 0.96 1.36

ENBRIDGE ENERGY PARTNERS LP - EEP
ENBRIDGE ENERGY PARTNERS LP - EEP  


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