Investing in solid, well-run businesses can help to build wealth so that you're better prepared for retirement. My philosophy is simple: When it comes to growth stocks, just buy and own a business that can increase its revenue, profit, and cash flow over the long term. The stock market will recognize the quality of the business and grant it a higher share price over time, allowing you to enjoy increasing capital gains.
The question you may ask is, what are the right types of stocks to buy and hold over years or even decades? I like companies that demonstrate steady growth in their top and bottom lines as it implies that the business has an edge that enables it to continue growing.
These businesses should, ideally, be churning out lots of free cash flow (what's left of cash flow after capital investments) so they don't need to rely on banks to finance growth. By generating large amounts of free cash flow, these companies can pay an increasing dividend, thus helping you secure a larger stream of passive income.
The following three stocks are great candidates to buy and hold for the rest of your life.
Image source: Getty images.
Accenture
Accenture (NYSE: ACN) offers consulting services to help its clients optimize their workplaces, improve productivity, and add value to their customers. The company reported strong and rising revenue, along with higher net income, during the past three fiscal years.
Revenue increased from $50.5 billion for fiscal 2021 to $64.1 billion for fiscal 2023 (ended Aug. 31). Net income climbed from $5.9 billion to $6.9 billion over the same period. The free cash flow generated was healthy and averaged $8.7 billion per year from the consultancy firm. Because of this consistent free-cash-flow generation, dividends increased from $3.52 per share to $4.48 from fiscal 2021 through 2023.
Accenture's earnings momentum has carried over into the first nine months of fiscal 2024 (ended May 31). Revenue inched up 0.8% year over year to $48.5 billion, while net income rose 1.5% year over year to $5.6 billion. The business continued to generate copious amounts of free cash flow and raised its quarterly dividend to $1.29 from $1.12 a year earlier, giving the professional services company an annualized dividend of $5.16 and a dividend yield of about 1.6%.
Accenture has a track record of growing through acquisitions and carried out three such transactions in early July. The first was the purchase of Excelmax Technologies in India to boost its silicon design and engineering capabilities. The second involved the acquisition of True North Solutions, an industrial engineering solutions provider in Canada, to help the company's clients transport energy safely and more efficiently.
The third acquisition was Cientra, a company based in the U.S. with offices in Germany and India. Cientra can help Accenture with consulting expertise in the Internet of Things (IoT) and application-specific integrated circuit design. Accenture has more potential to grow in new and adjacent verticals through acquisitions, so investors should view the company as a long-term steady grower that dishes out a rising dividend.
Cintas
Cintas (NASDAQ: CTAS) provides products and services to help a wide range of businesses keep their premises clean, such as uniforms, mops, fire extinguishers, and safety training. Like Accenture, the company's revenue and net income has increased steadily during the past three fiscal years.
Total revenue increased from $7.1 billion in fiscal 2021 to $8.8 billion in fiscal 2023 (ended May 31). Net income rose at a slower pace but still posted consecutive year-over-year increases, going from $1.1 billion in fiscal 2021 to $1.3 billion by fiscal 2023. Free-cash-flow generation averaged $1.26 billion over the three fiscal years and demonstrates the impressive cash generation of Cintas's business.
For the first nine months of fiscal 2024 ended Feb. 29, Cintas saw revenue continue to climb, increasing by 9.1% year over year to $7.1 billion. Net income rose by 16% year over year to $1.16 billion. Free cash flow did even better over the same period, jumping 31% year over year from $820 million to $1.08 billion.
Cintas's latest quarterly dividend came in at $1.35 per share, a 17% year-over-year increase from the prior year's $1.15. The company boasts an enviable track record of raising its dividends consistently since it went public 41 years ago.
The company's vision is to expand its market by acquiring new customers and increasing its market share as only 1 million businesses out of a potential 16 million are its clients. With market penetration rates of less than 20%, management believes there's room for further growth. If the company is successful, investors should see its top and bottom lines continue to grow.
Rollins
Rollins (NYSE: ROL) is a leading pest-control company that provides protection against termites, rodents, and other insects to more than 2.8 million customers around the globe. The company reported steadily increasing revenue from 2021 to 2023, going from $2.4 billion to $3.1 billion. Net income increased from $365.6 million to $435 million over the same period.
The company also dished out higher dividends, paying out $0.54 per share in 2023, compared with $0.42 back in 2021. During this three year period, the business also generated positive free cash flow averaging $435 million a year. These financial numbers point to a solid business with consistent growth in both revenue and profit.
The business continued its positive momentum in 2024's first quarter with revenue climbing 14% year over year to $748.3 million and net income improving by 7% year over year to $94.4 million. Rollins continued its track record of free-cash-flow generation, but investors should note that the company has spent a fair bit of money on acquisitions to expand.
Back in December 2021, the company expanded into Southeast and Southwest Florida through the acquisition of seven branches from Hulett Environmental Services and then rebranding them as Northwest Extermination. In April 2022, Rollins's subsidiary Orkin acquired NBC Environment, a pest-control company centered around bird control with more than 100 staffers. A year later, it purchased Fox Pest Control, which provided Rollins with good growth opportunities and was immediately accretive to earnings and cash flow.
Management has stated that the company operates in a large and highly fragmented industry, giving it ample opportunities to continue growing both organically and through acquisitions.
Royston Yang has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Accenture Plc and Rollins. The Motley Fool recommends Cintas and recommends the following options: long January 2025 $290 calls on Accenture Plc and short January 2025 $310 calls on Accenture Plc. The Motley Fool has a disclosure policy .
Most Popular
Comments / 0