Buy and hold investing is the best way to grow your wealth because it's relatively easy, extremely rewarding, minimises extraneous costs such as brokerage and can greatly reduce your tax liability. Sure, you could've successfully traded shares in companies like Westpac Banking Corp (ASX: WBC) or Woolworths Limited (ASX: WOW) over the past 15 years (at the time shares were trading at $11.50 and $5, respectively) and made a pretty penny.
However if your strategy was long term and you held onto shares, you would be sitting on gains of at least 300% and 600%, respectively. What's more, if you still hold Woolworths' shares today its annual dividend payment would be equivalent to 26% of your initial investment, per annum!
I'll agree it's difficult and time consuming to find the next Woolworths or Westpac, but that isn't a reason to give up on long-term investing altogether. Right now, there are many great ASX companies which certainly could be the next big thing.
1. Slater & Gordon Limited (ASX: SGH) is already a household name throughout much of Australia. It is our premier personal injury (PI) law firm with 70 offices across the country. However, it's busy expanding into personal legal services (PLS) and growing its operations in the UK organically and acquisitively. Although it yields a dividend of only 1.7% fully franked, its long-term earnings growth trajectory will bring better dividends.
2. Another company pursuing both acquisitive and organic growth is childcare centre operator G8 Education Ltd (ASX: GEM). Despite trading on forward P/E ratio of 21, it is forecast to pay a 3.4% dividend. As it pursues its growth strategy, earnings are expected to grow strongly and, with only $270 million in unsecured debt (market cap: $1.5 billion), cash flow should grow strongly too.
3. Northern Star Resources Ltd (ASX: NST) might seem like a long-term investment that is unintelligible, however it has proven to be a fantastic gold miner. Despite the worst gold price drop in 30 years experienced throughout 2013, Northern Star continued to pay a juicy fully franked dividend. In addition, thanks to its superior balance sheets, it took the opportunity to buy a number of low-cost projects from other struggling miners. In FY15 analysts are expecting earnings per share to hit 30 cents, putting it on a forward P/E ratio of just 4.5!
Is this the ASX's BEST long-term buy and hold?
Each of these companies could prove to be the next Woolworths, Westpac or, in Northern Star's case, the next Newcrest Mining Limited (ASX: NCM). However not everyone can afford to wait 10 years for exceptional dividend yields.
