2 passive income stocks for the next 10 years and beyond

Stephen Wright has two income stocks that he thinks can do well over the next 10 years. One is a UK brick company, the other is a US food business.

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Key Points

  • Finding income stocks for the next 10 years involves looking for long-term trends that are likely to continue over time
  • With demand for bricks outstripping supply in the UK, Forterra looks set for long-term growth
  • Kraft Heinz's improving balance sheet should allow it to grow its earnings and boost shareholder returns

When I buy stocks, I look for investments that I can own for a long time. That means finding businesses that can grow their net income over the next decade or more.

Thinking in terms of the next 10 years means looking past the possibility of a recession in 2023. It involves thinking about what demand for products will look like over time and which companies will benefit.

Forterra

With a dividend that currently yields 5%, Forterra (LSE:FORT) looks like an interesting stock for dividend investors. And I think that the brick company stands to do well over the next decade.

UK bricks are an industry where demand outstrips supply. And I expect this to continue over the next 10 years. 

Building projects currently use around 2.6bn bricks, but local production capacity is only around 2.1bn. That leaves a significant shortfall, giving brick businesses like Forterra scope for profitable growth.

The company has been looking to take advantage of this by upgrading its factories to increase its production capacity. I expect this to pay off by boosting earnings over the next decade.

Of course, other brick companies are doing the same, so there’s a risk of significant competition. But there are a couple of reasons that I think this risk is limited.

First, Forterra’s bricks are used in around 25% of houses in the UK. This makes them the natural choice for extensions, which I expect to become more popular as the amount of available space decreases.

Second, even with the planned investments, local manufacturing supply is still set to remain short of demand. That means there scope for all of the UK’s brick companies to generate good returns.

At a price-to-earnings (P/E) ratio of under 10, Forterra shares look cheap to me. I think they could be a great source of psasive income for the next 10 years.

Kraft Heinz

I think that Kraft Heinz (NASDAQ:KHC) flies under the radar of most passive income investors because its dividend has been flat since 2019. But I’m expecting an increase in shareholder returns in the near future.

The stock is a very different type of proposition to Forterra. Where demand for bricks is closely tied to interest rates and house prices, demand for food is much more steady and stable.

As a result, I don’t expect the company’s earnings to get a significant push from the economy. But I do think it has good capacity for earnings growth. 

The main risk with Kraft Heinz is the amount of debt it has on its balance sheet. That’s the main reason the dividend has been static and it’s something investors will want to keep an eye on with interest rates rising.

This is something that the company has been working to address since 2019, though. In that time, the company’s long-term debt has decreased by around 32%.

With the balance sheet in a better state, I expect Kraft Heinz to spend less on interest payments. As a result, I’m expecting shareholder returns to increase.

I don’t think the stock is expensive at today’s prices. I think it’s a great choice for investors seeking passive income over the long term.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Stephen Wright has positions in Kraft Heinz. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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