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Warren Buffett is deservedly hailed as the greatest long-term investor in history. It is telling that he only ascended to fame in the early nineties when he was in his early sixties. Unfortunately, you need to get very old to really reap the fruits of this type of investing.

For the purposes of this article, I have singled out three of Mr. Buffett's holdings I believe are good enough to become family heirlooms.

1) General Dynamics Corp (GD)

  • Current dividend yield: 2.88%
  • Annualized growth in total cash dividend paid since 2007: 10.89%
  • Annualized growth in EPS (earnings per share) - last 9 years: 12.21%
  • Number of shares in 2012 / number of shares in 2007 =86.88%

General Dynamics Corp Cash Flow

Fiscal Year Ending Dec 31

2011

2010

2009

2008

2007

Total cash from operations (USD millions)

3,211

2,984

2,840

3,110

2,925

Total cash from investing (USD millions)

(1,974)

(408)

(1,392)

(3,662)

(852)

Free Cash Flow - FCF (USD millions)

1,237

2,576

1,448

-552

2,073

Net income (USD millions)

2,526

2,624

2,394

2,459

2,072

Total cash dividends paid (USD millions)

(673)

(631)

(577)

(533)

(445)

FCF / cash dividends paid

1.84

4.08

2.51

-

4.66

Issuance (retirement) of stock, net (USD millions)

(1,270)

(908)

(67)

(1,378)

(298)

Basic/primary weighted average shares (millions)

364

381

386

396

404

Total long term debt (USD millions)

3,907

2,430

3,159

3,113

2,118

Source: ft.com

My take: Of the three stocks in this article, this is my favorite. It realizes fully 69% of its revenues from the U.S. government (source: General Dynamics Annual Report 2011, page 22) with a further 9% from international defense customers. That means that about 80% of this firm's revenues come from inexhaustible government coffers. Especially the one from the US budget, whose masters are hell bent on printing money.

There has been a lot of talk in recent years on monetary issues, where one of the catches is that the economic winners are those who get their hands first on newly printed money. In fact, General Dynamics may be viewed as a giant receptacle for government moneys. It received $26.141 billion from governments in 2011 - if we are to multiply the above mentioned 80% with the firm's revenues. The firm is also renowned for producing those Gulfstream jets. General Dynamics will be selling weapons and corporate jets long after we are all dead.

2) Wal-Mart Stores (WMT)

  • Current dividend yield: 2.20%
  • Annualized growth in total cash dividend paid since 2008: 8.90%
  • Annualized growth in EPS (earnings per share) - last 10 years: 11.11%
  • Number of shares in 2012 / number of shares in 2008 = 82.73%

Wal-Mart Cash Flow

Fiscal Year Ending Jan 31

2012

2011

2010

2009

2008

Total cash from operations (USD millions)

24,255

23,643

26,249

23,147

20,642

Total cash from investing (USD millions)

(16,609)

(12,193)

(11,620)

(10,742)

(15,670)

Free Cash Flow - FCF (USD millions)

7,646

11,450

14,629

12,405

4,972

Total cash dividends paid (USD millions)

(5,048)

(4,437)

(4,217)

(3,746)

(3,586)

FCF / cash dividends paid

1.51

2.58

3.47

3.31

1.39

Issuance (retirement) of stock, net (USD millions)

(6,298)

(14,776)

(7,276)

(3,521)

(7,691)

Basic/primary weighted average shares (millions)

3,460

3,656

3,866

3,939

4,066

Total long term debt (USD millions)

47,079

43,842

36,401

34,549

33,402

Source: ft.com

My take: I used to fret and worry about Wal-Mart. History is littered with examples of retail empires destroyed by new trends. In today's increasingly internet powered world, the changes are coming with bewildering speed. Take the example of Barnes & Noble (BKS) endangering independent booksellers only to be swept away by Amazon, or the example of these store chains entering a period of woe.

I even toyed with the idea of investing in Safeway (SWY), which I consider a fine cash cow, but then I realized that Safeway's $1 billion is nothing compared to Wal-Mart's north of $10 billion of free cash flow. Free cash flow enables retailers to reinvent themselves if need be. For example, see this newest initiative where Wal-Mart pledges to hire thousands of veterans and buy more US products over the next decade.

The retail scene is increasingly dominated by the biggest national chains with close relations to the local authorities. Remember how Hillary Clinton came to the White House straight from the Wal-Mart board of directors, and how the all mighty Wal-Mart had to leave Germany with its tail between its legs when faced with a hostile government?

3.) The Coca-Cola Co (KO)

  • Current dividend yield: 2.76%
  • Annualized growth in total cash dividend paid since 2008: 8.09%
  • Annualized growth in EPS (earnings per share) - last 9 years: 8.60%
  • Number of shares in 2012 / number of shares in 2007 =97.32%

The Coca-Cola Co Cash Flow

Fiscal Year Ending Dec 31

2011

2010

2009

2008

2007

Total cash from operations (USD millions)

9,474

9,532

8,186

7,571

7,150

Total cash from investing (USD millions)

(2,524)

(4,405)

(4,149)

(2,363)

(6,719)

Free Cash Flow - FCF (USD millions)

6,950

5,127

4,037

5,208

431

Net income (USD millions)

8,634

11,859

6,906

5,874

6,027

Total cash dividends paid (USD millions)

(4,300)

(4,068)

(3,800)

(3,521)

(3,149)

FCF / cash dividends paid

1.62

1.26

1.06

1.48

0.14

Issuance (retirement) of stock, net (USD millions)

(2,944)

(1,295)

(856)

(493)

(219)

Basic/primary weighted average shares (millions)

4,568

4,616

4,628

4,630

4,626

Total long term debt (USD millions)

13,656

14,041

5,059

2,781

3,277

Source: ft.com

My take: I used to worry and fret about Coca-Cola too. Soda drinks may be on the way to being pronounced as unsafe as cigarettes. But I think Coke is still a long way from being branded an imminent health risk. However, the consumption of sparkling beverages is flat in North America and Europe, while growing healthily in emerging markets. The Coca-Cola Company has put up this very useful map to illustrate the growth of its physical sales. I think the key question are the dietary habits of the world's population. If the emerging economies continue to grow their intake of Western style junk foods, the future of Coke is assured. Otherwise, if people the world over start eating more healthy food, Coke may be in jeopardy. You can't drink Coke with lettuce. Warren Buffett has been the greatest champion of Coke as a consumer and as an investor, and this link shows him extolling the economic advantages of Coca-Cola as a long term investment.

Source: You Can Leave General Dynamics, Wal-Mart And Coca-Cola To Your Kids