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Why I’d buy and hold this FTSE 100 cash rich, dividend champion all the way through to 2030

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In my view, there’s only a small number of companies out there that are worth buying and holding for a decade or more. Indeed, since the turn of the century, the average lifespan of listed companies has declined dramatically, and it seems as if it is now harder than ever before for investors to find long-term winners.

However, some companies still have what it takes to stand the test of time, and in my view, gold explorer Randgold Resources (LSE: RRS) falls into this bucket. 

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All that glitters 

Randgold is, in my opinion, the world’s most efficient gold producer. It is committed to a set of rules which mean that it will only take on the most lucrative projects. 

These guidelines have helped the company thrive over the past decade as other gold miners, obsessed with expanding production at all costs, have wasted billions on expensive vanity projects. Randgold, on the other hand, will only start to develop a mine if it can produce an internal rate of return (a method of calculating a rate of return on investment) of 20% or more. Management will also only commit to a project if it has the potential to produce 200,000 ounces or more of gold per year, with the cost of production per ounce in the lowest quartile globally. 

These rules have enabled it to thrive as other producers have struggled. The group’s operating profit margin has averaged 31% over the past five years. Unfortunately, the firm has no control over the global gold price, so earnings bounce around from year-to-year, depending on what prices it can get for its output. After hitting a high of $432m in 2012, pre-tax profit slumped to $189m in 2015 before recovering to $278m for 2017. Analysts are expecting a figure of $261m for 2018. 

Randgold’s balance sheet is strong enough to manage this volatility. At the last count, the company had a cash cushion of $717m and no debt. This is enough to keep the lights on if the price of gold plunges and to maintain the dividend policy for the foreseeable future. And talking about dividends, the shares currently yield 3.3% after the firm hiked its annual payout to $2.69 per share yesterday. 

Global leader 

All of the qualities listed above indicate to me that this is an excellent buy-and-forget investment. What’s more, as a gold miner, demand for the group’s output is unlikely ever to tail off. The price of gold might fall, but there will always be demand for the yellow metal as a store of wealth.

To cement its position as the world’s leading producer of gold, it is currently pursuing a tie-up with Canada’s Barrick Gold. The $6bn deal, which received approval from South African anti-trust regulators today, will see them combining to create New Barrick Group with Barrick Gold holding a 66.6% stake and Randgold the rest. The enlarged entity should be able to push down costs and chase more significant projects, yielding better margins and returns for investors. 

So, if you’re looking for a potentially future-proofed company to include in your retirement portfolio, in my view, Randgold certainly deserves further research. 

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Rupert Hargreaves owns no share mentioned. 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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