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Moody's (MCO)

With returns on invested capital consistently in the mid-20% range, credit rating leader Moody’s leads off our list.

Moody’s shares held up incredibly well during the height of the pandemic. And despite the recent market correction, the stock is still up about 160% over the past five years.

The company’s well-entrenched leadership position in credit ratings, which leads to outsized returns on capital, should continue to limit Moody’s long-term downside.

Moreover, Moody’s has generated about $1.9 billion in trailing twelve-month free cash flow. And in 2021, management returned $1.2 billion to shareholders through share repurchases and dividends.

As of Q1 2022, Berkshire holds more than 24.6 million shares of Moody’s worth just over $8.3 billion. Moody’s has a dividend yield of 0.9%.

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Apple (AAPL)

Next up, we have consumer technology gorilla Apple, which boasts a five-year return on invested capital of 31%, much higher than that of rivals like Nokia (-2%) and Sony (13%).

Even in the cutthroat world of consumer hardware, the iPhone maker has been able to generate outsized returns due to its loyalty-commanding brand and high switching costs (the iOS experience can only be had through Apple products).

And with the company continuing to penetrate emerging markets like India and Mexico, Apple’s long-term growth trajectory remains healthy.

In the most recent quarter, Apple’s revenue increased 9% to $97.3 billion. The company also returned over $27 billion to shareholders.

The stock currently sports a dividend yield of just 0.6%, but with a buyback yield of 3.6%, Apple is doling out more cash to shareholders than you might think.

It's no wonder that Apple is Berkshire's largest public holding, owning more than 890 million shares in the tech giant worth roughly $155.5 billion.

Procter & Gamble (PG)

Rounding out the list is consumer staples giant Procter & Gamble, with a solid five-year average return on invested capital of 14%.

Berkshire held 315,400 shares at the end of Q1, worth around $48 million at today’s price. While that’s not a big position by Berkshire standards, something does make P&G stand out: the ability to deliver rising cash returns to investors through thick and thin.

The company offers a portfolio of trusted brands like Bounty paper towels, Crest toothpaste, Gillette razor blades, and Tide detergent. These are products households buy over and over no matter what the state of the economy is.

In April, P&G’s board of directors announced a 5% increase to the quarterly payout, marking the company’s 66th consecutive annual dividend hike.

P&G shares currently offer a dividend yield of 2.5%.

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Fine art as an investment

Stocks can be volatile, cryptos make big swings to either side, and even gold is not immune to the market’s ups and downs.

That’s why if you are looking for the ultimate hedge, it could be worthwhile to check out a real, but overlooked asset: fine art.

Contemporary artwork has outperformed the S&P 500 by a commanding 174% over the past 25 years, according to the Citi Global Art Market chart.

And it’s becoming a popular way to diversify because it’s a real physical asset with little correlation to the stock market.

On a scale of -1 to +1, with 0 representing no link at all, Citi found the correlation between contemporary art and the S&P 500 was just 0.12 during the past 25 years.

Earlier this year, Bank of America investment chief Michael Harnett singled out artwork as a sharp way to outperform over the next decade — due largely to the asset’s track record as an inflation hedge.

Investing in art by the likes of Banksy and Andy Warhol used to be an option only for the ultrarich. But with a new investing platform, you can invest in iconic artworks just like Jeff Bezos and Bill Gates do.

About the Author

Brian Pacampara, CFA

Brian Pacampara, CFA

Investing Editor

Brian is an editor for MoneyWise. A long-time stock junkie, his work has appeared in The Motley Fool, Seeking Alpha, and Yahoo Finance. He believes in owning "Forever Stocks" — a rare group of businesses that have paid out dividends for decades. Brian holds the Chartered Financial Analyst (CFA) designation.

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