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When I buy stocks, I look for investments that I can own for a long time. That means finding businesses that can grow your bottom line for the next decade or more.
Thinking in terms of the next 10 years means looking beyond the possibility of a recession in 2023. It means thinking about what the demand for products will be like over time and which companies will benefit.
Forterra
With a dividend that currently yields 5%, Forterra (LSE:FORT) looks like an interesting stock for dividend investors. And I think the brick company is going to do well for the next decade.
UK bricks are an industry where demand exceeds supply. And I hope this continues for the next 10 years.
Construction projects currently use about 2.6 billion bricks, but local production capacity is only about 2.1 billion. That leaves a significant shortfall, giving brick companies like Forterra scope for profitable growth.
The company has been looking to take advantage of this by upgrading its factories to increase its production capacity. I hope this pays off in increasing earnings over the next decade.
Of course, other brick companies are doing the same, so there is a risk of significant competition. But there are a couple of reasons why I think this risk is limited.
Firstly, Forterra bricks are used in around 25% of houses in the UK. This makes them a natural choice for extensions, which I expect will become more popular as the amount of space available decreases.
Second, even with the planned investments, the supply of local manufacturing will still lag behind the demand. That means there is scope for all UK brick companies to generate good returns.
With a price-earnings (P/E) ratio of less than 10, Forterra stock looks cheap to me. I think they could be a great source of passive income for the next 10 years.
kraftheinz
I think that kraftheinz (NASDAQ:KHC) flies under the radar of most passive income investors because its dividend has been flat since 2019. But I expect shareholder returns to rise in the near future.
Action is a very different type of proposition than Forterra. Where the demand for bricks is closely tied to interest rates and house prices, the demand for food is much more constant and stable.
As a result, I don’t expect the company’s earnings to get a significant boost from the economy. But I do think it has a good capacity for earnings growth.
Kraft Heinz’s main risk is the amount of debt it has on its balance sheet. That’s the main reason the dividend has been flat and it’s something investors will want to keep an eye on with rising interest rates.
However, this is something the company has been working to address since 2019. In that time, the company’s long-term debt has fallen by around 32%.
With the balance sheet in better shape, I expect Kraft Heinz to spend less on interest payments. As a result, I expect shareholder returns to increase.
I don’t think the stock is expensive at today’s prices. I think it’s a great option for investors who are looking for long-term passive income.
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