I have a confession, for the last 12 months, I've been over 100% invested, courtesy of a loan from my lovely mother. The arrangement means I lose out if I don't generate returns of over 6% per annum. I've been lucky so far, but now I'm keen to have some cash. My main reason for this is that if and when the market dips, corrects or crashes, I'd like to have some dry gunpowder, so to speak. Here are two top stocks I won't be selling.
My number two buy-and-hold company is Bentham IMF Limited (ASX: IMF). The purpose of the litigation funder is to fund and manage litigation on behalf of plaintiffs who lack adequate resources to sue big corporations or governments who have wronged them. That's something shareholders should be proud of.
One important recent development is the recent joint venture and co-funding agreement announced with Elliott Management Corporation. This is an excellent arrangement because it means that IMF will not have to front all the capital for its expansion plans in Europe. Better yet, the co-funding means that Bentham IMF will reduce its exposure to individual cases that are particularly large.
As the company takes on more and more expensive litigation against corporate behemoths, it needs to build its own financial strength. While this is a weakness in the business model (requiring a very strong balance sheet), the company has an attractive business model for other reasons.
Essentially, demand for Bentham IMF's services is driven by a fair and functioning legal system combined with wrongdoing. If anything, it has been a big beneficiary of the GFC (although as it gets bigger, funding risks become more significant, meaning it may not be so lucky next time). The really juicy business is in extracting settlements (and not having to fight it out in court).
My number one buy-and-hold investment is 1300 Smiles Limited (ASX: ONT). To me, my investment in the company only makes sense if I never sell the shares – and if the company continues to be run the way it is today, I won't need to. The company's purpose is to make dentistry efficient and affordable, so it's another example of capitalists who can hold their heads high.
1300 Smiles owns, operates and provides administrative support to dentists as an employer or a practice manager. Employee dentists have the comfort of a secure salary. Self-employed dentists pay the company a management fee on a sliding scale, such that they are incentivised to be more productive. The company has taken a big hit due to the closure of the Chronic Dental Disease Scheme (CDDS), but shareholders seem to be uncannily unfazed, with the share price indicating optimism.
The dividend was reduced as a result of the government cuts. At current prices the company will still pay a grossed up dividend of over 3%, according to my estimate. If anything, I think it might pay more than this, as I believe the majority shareholder (and CEO), Dr Daryl Holmes, would be comfortable with increasing it again.
The key to the business model is that the company chooses top-notch dentists who are good at their job and are friendly people. This is obviously important because it is the dentists themselves who will attract and retain clients. The company then tries to support (and incentivise) the dentists to improve their practice and increase revenues. For example, the company offers interest-free financing to patients for treatments.
The buy and sell spread looks pretty weak at the moment (so pop it on your watchlist in case of a sudden dip), and the growth priced in means that if I had to guess, I'd say that the share price won't rocket anytime soon. I'll judge myself on this call in 2023, but in the meantime, I'm happy with the small but not insignificant income stream.
Foolish takeaway
There aren't many stocks in my portfolio that I can definitively say I won't sell anytime soon. Of course, if the price became truly absurd, I would sell these stocks. In the meantime, they both pay decent dividends (though IMF's is difficult to predict). Over the long term, I expect the dividends will increase, and I think current prices are reasonable (though not cheap). The big test for IMF is to succeed in other markets, and the big test for 1300 Smiles is to rebuild revenues after the closure of the CDDS.
Nothing would please me more than if I am still holding these two companies in 30 years (and receiving hefty dividends every half). Either way, these are my top two companies for the very long term because I think they will fare well, even in a crisis. Regular readers won't be surprised to know that both companies are founder-driven. Perhaps the best reason to sign up below is access to plenty more long-term calls (from wiser minds than mine).
