One of the problems investors face these days is deciding which companies they can buy and own for the rest of their lives. With the business environment being so dynamic and technology disrupting age-old business models, investors cannot be blamed for feeling uncertain and wary.
However, there are still great businesses that can last for decades — if not generations. The key is to identify specific characteristics of a business that make it resilient to business cycles, disruptions, or changes. Management should also set a forward-looking tone and be ready to adapt and evolve over time. Such a proactive stance ensures the company is able to handle any form of disruption or competitive threat, and the moat of the business should also enable it to withstand business headwinds.
The following two companies have strong competitive moats and market positions and are also progressive and forward-looking. These are two stocks I feel confident buying and holding forever, and even passing down to my children!
1. Singapore Exchange Limited
Singapore Exchange Limited (SGX: S68), or SGX, is Singapore’s sole stock exchange and operates a platform for the buying and selling of securities such as equities, fixed income, and derivatives. SGX also provides services such as clearing and settlement and assists companies in listing their shares in initial public offerings (IPOs).
As SGX is the only stock exchange in Singapore, it’s operating as a monopoly, which gives it a strong competitive moat. Though it faces competition from regional and overseas stock exchanges, SGX has managed to rebrand itself as a multiasset stock exchange and the go-to exchange in Asia for a variety of derivative products that traders and investors can use to hedge and protect their portfolios.
In fact, SGX’s derivatives division displayed phenomenal growth and forms the thesis of why investors should look closely at the group. In its recent Q4 and FY 2019 earnings report (SGX has a 30 June year-end), SGX reported record derivatives revenue, up 52.2% year on year for the quarter and 35.3% year on year for the full year. The traded volume also hit a record 240 million contracts, up 21% year on year.
SGX reported a net profit of S$391 million, which was an 11-year high, and also registered its highest revenue (at S$910 million) since its IPO in 2000. The above are strong reasons to own this company for the long term as it continues to execute on its plan to become a pan-Asian multiasset stock exchange and to further grow its suite of derivatives.
SGX pays a quarterly dividend of 7.5 Singapore cents, and its shares offer a historical dividend yield of around 3.6%.
2. United Overseas Bank Limited
United Overseas Bank Limited (SGX: U11), or UOB, is one of Singapore’s three largest banks and offers a comprehensive suite of banking services to individuals and corporations. The bank has a global network of more than 500 offices in 19 countries in Asia Pacific, Europe, and North America.
UOB has grown steadily over the years to become one of the strongest banks in Asia. Its Q1 2019 earnings showed robust loan book growth of 12% year on year, while its non-performing loans ratio (NPL ratio) remained low at 1.5%. Being one of the three big banks in Singapore also implies that it has a strong economic moat and represents one of the major pillars of Singapore’s economy. The bank’s conservative approach and slow but steady growth will provide investors with peace of mind.
The bank paid out a total annual dividend of S$1.20 per share in FY 2018. Its shares offer a historical dividend yield of 4.8%.
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The information provided is for general information purposes only and is not intended to be personalized investment or financial advice. The Motley Fool Singapore has recommended shares of Singapore Exchange Limited and United Overseas Bank Limited. Motley Fool Singapore contributor Royston Yang owns shares in Singapore Exchange Limited.