A mistake many investors make, especially inexperienced ones, is babysitting their portfolios by continuously monitoring them, which can cause them to make too many adjustments. One way to avoid over-parenting your portfolio is by investing in stocks that don't need to be watched, such as those that have top-notch balance sheets and generate consistent cash flow so they can pay a reliable dividend. Three of these more mature options are Brookfield Renewable Partners (BEP 0.92%), Public Storage (PSA 0.04%), and 3M Company (MMM 0.86%), which are excellent choices for investors who have better things to do with their time than check in on their stocks.
The right formula for steady returns
Brookfield Renewable Partners is one of the world's largest hydroelectric power generators. Those assets crank out consistent cash flow for the company because 92% of its generating capacity is under long-term contracts that have an average remaining life of 16 years. The company typically distributes 70% of that cash to investors, which supports an attractive current yield of 5.6%. In addition to that, Brookfield has a strong investment-grade credit rating, backed by a low leverage ratio, which helps it navigate through the uncertain times so it can pounce on opportunities as they arise.
Image source: Getty Images.
In addition to providing investors with a stable, well-supported income stream, Brookfield Renewable Partners also offers visible growth prospects. That's because the company uses its retained cash flow to build additional renewable generating facilities, which it estimates can supply 3% to 5% annual earnings growth. Add to that the fact that its contracts contain inflation escalators that enable it to raise rates, and the company believes it can organically increase cash flow by a 5% to 9% annual rate, which should support a similar growth rate for its distribution. The company's ability to supply investors with a steadily growing income stream has proven to be a successful formula, powering Brookfield to generate 14% compounded annualized returns since 2011.
Profitable properties
Public Storage is the world's largest operator of self-storage facilities, which it leases to customers who need some extra space to store their stuff. While the initial contracts are short term, the company often develops a long-term relationship with renters that enables it to keep occupancy at its facilities high -- hitting 94.5% last quarter -- so it can push through price increases, with the average annual rent per occupied foot up 4.4% from last year. Further, the self-storage industry has proved to be very recession-resilient, which has enabled Public Storage and its peers to generate a growing stream of cash flow as they add capacity and raise prices that they use to pay a compelling dividend.
Last year, for example, Public Storage generated $9.70 per share in funds from operations, which was up 10.4% from 2015. At the company's current dividend rate of $8.00 per share, which amounts to a 3.7% current yield, Public Storage is on pace to pay out about 82% of its cash flow this year, which is a safe rate for a real estate investment trust. Meanwhile, the company has a long history of increasing its payout, including by more than 80% over the last five years, which has enabled the company to deliver a near 80% total annual return for investors over that timeframe. Add in an A-rated balance sheet, and Public Storage has the financial wherewithal to continue expanding earnings and its dividend at a healthy rate.
Innovation drives returns
3M is probably the most well-known name of this trio thanks to its branded products like Post-it notes, Command hanging solutions, and Scotch tape. That said, while the company makes some consumer products, its primary focus is to use science to invent ways to improve daily life. That focus on innovation has enabled 3M to steadily release new products that have continued to increase its revenue and profitability. In fact, the company estimates that a third of its revenue currently comes from products invented over the last five years.
The company expects to grow earnings per share by 8% to 11% annually through 2020, driven by its focus on innovation. That earnings growth would give it the cash to continue growing its solid 2.2% yielding dividend, which is something it has done for 59 straight years. That combination of earnings and income growth, when added to the company's A-rated balance sheet, should power market-beating returns over the long term, which is something 3M has done throughout its history.
Buy and forget stocks
This trio shares several commonalities that make them great stocks for investors who don't want to check in on their portfolio that often. First, they are financially healthy businesses that generate stable earnings and cash flow and have top-notch balance sheets, which gives them the financial resources to pay a sustainable dividend. Add in the fact that these companies have solid growth prospects, and they are low-risk investments that still have the potential to deliver excellent total returns over the long term.
