A High-Yield Company That’s Created Legendary Wealth for 176 Years – and Will Continue for Decades

Creating long-term wealth doesn’t require specialized knowledge. It only requires a certain kind of mindset.

Otherwise, you could lose all you’ve built up much faster than it took you to create it.

In today’s issue, Chief Analyst Adam Galas shares a remarkable story about how one family lost the largest fortune in America in just a few short years… And how you can avoid making those same mistakes.

He’ll also share a brand-new recommendation that’s trading at a discount and yielding over 8% to help you create your own generational wealth – as long as you have the right mindset.

In just a few years, you could double your returns. And the dividends can pay off for decades to come.

Make sure to read today’s issue in full. We’re also selling one company for a profit in our model portfolio and adding another. Adam will give you all the details on what you need to know and our new recommendations.

Happy SWAN (sleep well at night) investing,

Brad Thomas Editor, Fortress Portfolio

Imagine your family had $400 billion and lost it all in a single generation.

That’s exactly what happened to the Vanderbilts.

Cornelius Vanderbilt, the “commodore,” was a legendary tycoon who helped build America into a global industrial titan. He was born on Staten Island to Dutch immigrants, and his parents came from nothing.

In 1810, he borrowed $100 from his mom to buy his first ship. Sixty-six years later, he had amassed a $100 million fortune, or $200 billion in today’s money.

He did this through shipping and railroad stocks. He would buy up their stock when his rivals got into trouble during periodic recessions and depressions.

This is how he ultimately built his crown jewel, the New York Central Railroad, which in 1877 was America's largest and most powerful company.

His only monument to his power and wealth still stands today, inspiring awe in the form of the Grand Central Terminal in New York City.  

Source: CN Traveler, Getty

He is arguably the greatest capitalist in history, growing his wealth at 32% annually for 66 years.

(For comparison, Warren Buffett delivered 20% annual returns for 58 years for his company, Berkshire Hathaway’s, shareholders and is considered the best long-term investor of all time.)

Cornelius once said, "Any fool can make a fortune; it takes a man of brains to hold onto it."

How those words would haunt him if he knew what happened next…

When he died in 1877, Cornelius left his fortune to his son William, who kept it invested in the stock market, following his father’s time-tested strategies.

Through smart long-term income-focused investing, when William died in 1885, he had doubled his family’s fortune to the equivalent of $400 billion in today’s money.

This was a fortune larger than Andrew Carnegie ($310 billion) or Rockefeller ($340 billion).

What happened next is the stuff of financial legend and a warning to us all.

The family fortune passed to William’s two brothers, who passed it down to their siblings and children. And within 42 years, the largest private fortune in history was all but gone.

Here’s how they blew $400 billion in four decades.

They built 40 mansions, ten on Manhattan’s 5th Avenue alone. By 1947, all of them were torn down, and many were hardly lived in.

They constructed the Biltmore estate, a 175,000-square-foot palace three times larger than the White House. It remains the third-largest private residence ever constructed, with 250 bedrooms and 65 fireplaces.

Their parties were legendary. Gilded Age excess, putting even the Great Gatsby to shame.

In 1883, Alva Vanderbilt (Cornelius’s grandson’s wife) threw “the party of the century” for 1,200 guests. It was a costume ball that cost $250,000, or $6 million in today’s money.

How do you spend $5,000 per guest on a party? By passing around over 1,000 cigarettes rolled in $100 bills.

Yes, the Vanderbilts and their guests literally lit $3 million on fire and smoked it in a single evening.

Remember what Cornelius told his son William about how any fool can make a fortune, but it takes a man of brains to keep it?

The Vanderbilt descendants spent $9.5 billion annually. That breaks down to an average of $26.1 million daily, and an incredible $302,000 per second for 42 years.

They’re the ultimate example of how easy it is to spend away a lifetime of work and savings. That’s a trap we always want to avoid.

At Fortress Portfolio, our goal is to help you construct a portfolio of plays that can withstand decades – even centuries – of stock market and economic surprises. So even if you’ve had setbacks, you can reset your financial situation, make money while you sleep, and live the comfortable life you’ve always dreamed of – sustainably.

In today’s issue, I’ll show you how our goals and methods align with the arguably the greatest capitalist in history… And I’ll share a brand-new recommendation for our Fortress Portfolio that fits all the criteria he would have loved to see in a long-term investment.

And that’s not all. We recently got news of a buyout for one of our portfolio holdings, Magellan Midstream Partners (MMP). So we’ll recommend selling it today and buying the company acquiring it.

We’ll lock in a solid 24% gain in just a few months on the backs of this exciting development, and I’ll tell you everything you need to know about the new entity taking it over.

So make sure you read all the details in today’s issue. And let’s get started with how to replicate Vanderbilt’s secret to success with a brand-new recommendation… and avoid the mistakes his successors made on our journey to long-term, sustainable wealth.

Cornelius Vanderbilt didn’t live like a monk.

He built his home in 1839 for $27,000 or $675,000 in today’s money. It was "by far the finest residence on Staten Island." He enjoyed vacationing at resorts and living well. But what ultimately set him apart from his descendants was that he sought value in every dollar he spent and lived below his income to save for the future. He surrounded himself with trusted friends and family who shared his vision for making America great by building lasting infrastructure. Basically, Vanderbilt lived the classic immigrant success story that America is famous for. But unlike his heirs, who rejected everything he believed in and went broke because of it, Vanderbilt understood that true wealth comes from not having to work at all. Basically, you could be the richest person in the world. But without income, you're just setting your money on fire.

Vanderbilt built his fine home with cash flows from his companies, and dividends.

He vacationed on his dividends.

He sent his sons to college on dividends.

Vanderbilt effectively let his companies pay for everything he wanted. And he never had to sell his stock to live his rich but not extravagant life.

But do you know what’s even more amazing? His heirs, after his son William, could have spent the entire $400 billion family fortune – and then some – had they done it responsibly.

If they’d done what Cornelius did and stayed invested in dividend stocks… and let dividends pay for their lavish lifestyle… the Vanderbilts would still be the richest family in the world.

Here’s what I mean.

If Williams's brothers invested that lump $400 billion sum when they inherited it into the right strategy, it would have covered their $9.5 billion annual spending spree.

Take a high-quality portfolio like Fortress with a 6.6% yield. It would have paid $26.4 billion per year in dividends on day one. After taxes, that’s about $18.5 billion.

Reinvesting half and spending half would have allowed them to live the lavish lifestyle… without burning through cash reserves. In fact, they would have grown exponentially richer over time.

When you break down the numbers, you realize their income would have grown at 5% per year, or 2% adjusted for inflation. Every 72 years, their spending power would have doubled.

A high-yield blue-chip portfolio like Fortress would have let the Vanderbilts be as reckless as they actually were, responsibly and sustainably.

With that strategy, the Vanderbilts could have spent over $10 billion annually for over a century and still be worth $6.2 trillion today. That would make them wealthier than August Caesar, the richest human who ever lived ($5.7 trillion, adjusted for inflation).

And the Vanderbilt fortune would be generating $409 billion per year in dividends.

That’s the power of smart income investing, compounding, and selecting the safest long-term dividend-paying investments.

Cornelius became arguably the greatest capitalist in history because he never forgot the truth of wealth. Always live off the interest, and never spend your principal.

In other words, stock prices are vanity, cash flow is sanity, and dividends are reality. It’s OK to enjoy your money, as long as you never pay for anything and let your dividends pay for everything.

And that brings us to today’s recommendation.

It’s a company that traces its roots back to 176 years ago and has been one of the best-performing stocks of all time.

Its strong and well-funded dividend makes it a perfect pick for compounding your wealth in a way that would make Cornelius Vanderbilt proud. Plus, it’s trading at a discount to the levels we usually see it at.

By adding it to our portfolio today, we can double our returns in the next five years.

Cornelius Vanderbilt loved wide moat companies with strong competitive advantages. That allowed them to generate steady cash flow and growing dividends for decades.

And there are few I can think of that have done that more successfully than Altria (MO).

Altria is one of the world’s largest producers of tobacco-related products. It began as Philip Morris back in 1847 and was incorporated in New York in 1902.

Since then, it’s been growing and adapting to all the various phases of American society. And its stock continues to go strong today.

Altria’s free cash flow margin has been rising for 30 years and is 40% today. For comparison, that’s almost twice Apple’s margin. And it’s expected to remain stable at 40% for at least the next four years.

In other words, for every $1 in sales, 40 cents drop straight to the bottom line.

No business generated 40% free cash flow margins in Cornelius’s day, much less did so with such consistency or recession resistance.

In the Great Recession, Altria’s earnings grew 6%, and they grew 3% in the Pandemic recession. In the forecasted 2023 recession, management is aiming for 5% growth.

And just like Cornelius Vanderbilt was the best capitalist that ever lived, Altria has been the greatest stock in history.

With an $81 billion market cap, Altria isn’t an exciting company, except for one thing.

In the last 90 years, it’s delivered 17.7% annual returns. $1 invested in Altria 1930 is worth $7.5 million today, or $425,000 adjusted for inflation.

How is that possible when smoking rates have been falling for 60 years? And the U.S. government has been steadily tightening cigarette regulations for decades?

Yet despite this all, Altria has been releasing new products, adapting to trends, and diversifying its offerings to keep the profits rolling in.

Since 2000, Altria turned $1 into $33, a 16% annual return.

And since 2010, it turned $1 into $5, a 13% annual return. That’s better than the S&P 500’s 12% return over the same period.

And that’s with it still languishing in a bear market. That makes Altria undervalued, and it’s pushed its yield to a very safe 8%. And it’s why I’m recommending it today.

The war on tobacco has been relentless, yet Altria has done what Cornelius Vanderbilt did whenever he ran into headwinds like government regulations: adapt and overcome.

All legendary companies know you must change your business model when it’s threatened with disruption.

Altria has a proven ability to adapt and deliver the steady recession-resistant cash flow that investors love and depend on.

That’s how it delivered 53 consecutive years of dividend growth, making it a dividend king (a company with a 50-year-plus dividend growth streak).

That’s dividends rising every year since 1969, through:

An 8%-yielding 40% free cash flow margin business that grows even in severe recessions? Now that’s a business the commodore would love.

Despite Altria’s successful past, you may be concerned about the future.

For a company involved in cigarettes and tobacco – and trends moving steadily away from those – how is Altria expected to continue profiting?

It’s true that just one in 9 adults smokes. And the Food and Drug Administration (FDA) plans to regulate nicotine in cigarettes to “non-addictive” levels.

Simply put, cigarettes have no future. And Altria’s management was one of the first to say so years ago.

That’s why it’s been planning a “smoke-free” future for years, where it sells nothing but reduced-risk products, or RRPs.

Oral nicotine pouches, vaping, heat sticks, and cannabis are what Altria plans to sell for decades to come.

The company has a joint venture with Japan Tobacco to market its Horizon heat sticks in the US starting in 2024. Heat sticks are battery-powered devices that don’t use combustion or heating liquid.

It also plans to introduce its own heat sticks, using the Marlboro brand, the world’s #1 premium tobacco brand.

Altria has almost 60% market share in premium tobacco. In the last year, that’s actually gone up 1%.

It just bought NJOY for $2.7 billion. NJOY is the only company in America with FDA-approved vaping products.

Right now, NJOY is sold through 33,000 stores across America. Altria’s cigarettes are sold in 200,000. Once this deal closes and Altria can roll out NJOY through its entire distribution chain, its market share could rapidly rise from 3% to 20%.

That’s because the FDA is cracking down on Juul and VUSE, America's two most popular vaping brands. In fact, the FDA wants Altria’s competitors pulled off U.S. shelves completely.

The FDA, which has been at war with Altria for years, is now its greatest ally in the quest for vaping market share.

And we know Altria’s plans to roll out NJOY, Horizon, and its own products – including oral nicotine pouches – overseas has a good chance of working.

Nicotine pouches are growing at 40% annually and have been for years.

In the US, oral nicotine pouches are a $800 million business growing at 33% annually.

Nicotine pouches are considered one of the least harmful ways to ingest nicotine. They greatly reduce the health risks that come from smoking cigarettes.

Globally, nicotine pouches are a $1.5 billion business, growing at 36% annually. In the U.S., that’s an estimated $7.6 billion market by 2030. And $23.4 billion internationally over the same time.

Analysts expect Altria’s sales to be around $24 billion in 2030. And oral pouches could potentially make up 25% to 50% of that.

By 2028, Altria plans to have 28% of its sales from smoke-free products, up from 12% in 2022.

And management says it is about 15 to 20 years away from selling no cigarettes. Until then, it looks like Altria’s legacy business will hold out for about 23 years.

Altria says it can grow earnings and dividends at 4% to 6% per year, switching steadily to a cigarette-free future.

That means 12% to 14% long-term returns for anyone buying today, potentially for decades to come.

But remember that Altria is in a bear market, which means that in the short-term your potential returns are much greater.

Altria’s average price-to-earnings (P/E) ratio over the last 20 years, including severe bear markets and bubbles, is 14.

Factor in the 5-year average yield of 7.3%, which is a 100% bear market period, and you get a more conservative fair value estimate of 13 times earnings for a slower-growing but steadily less risky company.

Today Altria trades at 9.1 times earnings and just 8.4 cash-adjusted earnings.

The average private equity deal is closing at 11 times cash-adjusted earnings. This means you can buy Altria’s very safe 8.1% yield 25% cheaper than what hedge funds are getting in the private equity market.

Except you’re not locking up your money for 5 to 15 years.

What does a 22% discount to conservative fair value get you? If Altria grows as expected and returns to a conservative fair value of 13 times earnings by these dates, just take a look:

Analysts expect the S&P to deliver 60% total returns by 2029, and 8.1%-yielding Altria could almost triple that.

From a dividend king with a 1% chance of a dividend cut even in a debt-ceiling-induced economic crash.

And over the long-term, management is guiding for 13% annual total returns, slightly better than Buffett’s unlevered returns for the past 58 years.

Ok, this all sounds amazing. 8% very safe yield, incredible short-term return potential, and a valuation that’s 25% better than what hedge funds get.

But what if management is wrong about its long-term plans? What if Altria can’t grow at 5% over time, as management, analysts, rating agencies, and the bond market expect?

Why am I so confident that the expert consensus is right about Altria’s growth prospects?

Because the average annual margin of error for Altria’s growth estimates for the last 12 years is 1.8%.

In other words, management’s guidance for a business this stable and predictable is, like Cornelius Vanderbilt’s word, is “good as gold.”

Anyone buying Altria today at a 22% conservative discount, 8.4 times cash-adjusted earnings, and a very safe 8.1% yield are likely to be thrilled with the results in 5+ years.

The biggest risk to Altria’s future growth prospects is its execution on its smoke-free plans.

It’s not the industry leader in heat sticks. That would be Philip Morris International, which is launching its own popular iQos heat sticks in the U.S. in 2024.

It’s not the leader in vaping, which is nine times more popular than heat sticks with younger nicotine users. That would be British American’s VUSE.

Altria’s upcoming in-house heat sticks and vaping products are going to face stiff competition. Though its ability to market under Marlboro is an advantage.

However, the biggest execution risk to its smoke-free plans is potentially time.

The FDA plans to ban menthol cigarettes in the future, and British American estimates this might be coming in 2027.

Nicotine regulation is expected between 2028 and 2030.

Meanwhile, high inflation has caused faster volume declines than what management expects long-term (5% per year).

In Q1, volume declines were 11%, indicating that analyst estimates of a 23-year runway to switch to smoke-free products could be overly optimistic.

In addition, there is the issue of margins. Vaping is a lower-margin business than cigarettes and heat sticks, which have similar gross margins.

Vaping is the most popular form of nicotine consumption among younger customers, and this might make maintaining its famously rich free cash flow margins much more challenging in the coming years and decades.

But despite all this, Altria remains a compelling buy today. Here are our final thoughts…

Cornelius Vanderbilt built the greatest fortune America had ever seen by following time-tested investing principles that anyone can use to grow their own dividend empire.

In other words, Altria, at its attractive valuation and 8% very safe yield today, is a Cornelius Vanderbilt-like dream dividend king.

One that can help your Fortress portfolio carry you to a rich retirement with steadily growing income, no matter what the economy or stock market is doing.

Action to Take: Buy shares of Altria (MO) Buy-up-to Price: $59.85 Position Sizing: 4.4% of your Fortress Portfolio. Or up to 20% in an individual portfolio. Risk Management: 30% hard stop loss ($31.40 for our tracking purposes)

Next, let’s go over a recent development in our portfolio, which will have us selling one position for a profit and replacing it with a new one.

Fortress is all about long-term buying and holding the world’s best high-yield blue-chips, the kind of companies that can help you retire in safety and splendor, no matter your age in all economic and market conditions.

The only reasons we sell a stock are:

Today, I recommend you sell Magellan Midstream Partners (MMP) and buy ONEOK (OKE).

Here’s the summary of why it makes sense to cash in your generous Magellan profit early and roll that money into ONEOK.

Magellan is a midstream oil and gas company that transports, stores, and distributes petroleum products.

On Monday, May 15, ONEOK – another midstream – announced it was buying Magellan for $18.8 billion. That makes it the second largest merger and acquisition (M&A) deal in the industry’s history.

ONEOK is paying $25/share in cash and 0.667 common shares of OKE for each outstanding Magellan unit.

The deal will close in Q3 2023 upon receiving shareholder and regulatory approval.

The market is pricing in a 79% chance both will approve this deal.

There are a few reasons it makes sense to sell Magellan now rather than wait for the deal to close later this year.

First, this is the most shareholder-friendly midstream M&A deal I’ve seen in my 10 years as an analyst covering this industry.

I estimate MMP is worth $68.90, and OKE offered $67.50 (factoring in the dilution), which is basically fair value.

Plus, OKE’s share price fell 9% after the deal was announced. That means it’s buying $69 in value for $63.65. That’s an 8% discount, a good deal for ONEOK.

Actually, it’s not an 8% discount, but potentially a 46% discount. That’s because ONEOK has identified $7.1 billion in cost savings and tax benefits that pay for 38% of this deal.

ONEOK’s management is some of the most skilled and battle-tested in the industry. That’s why this company has survived for 117 years over dozens of oil crashes, including oil hitting -$38 in April 2020.

If management can deliver on those cost savings, it’s buying the most profitable midstream in America at 7.3 times its cash-adjusted earnings.

For context, private equity deals are closing at 11.3X cash-adjusted earnings. ONEOK is getting a Shark Tank great deal for buying America's most profitable pipeline assets.

But wait, it gets better. ONEOK buying Magellan will quadruple its free cash flow, and reduce its payout ratio to 56%, creating a 99% safe dividend with a 1% risk of a cut in even a Great Recession (or debt default) level downturn.

ONEOK hasn’t cut its dividend in 34 years.

Moreover, management says buying Magellan could boost its long-term growth by 20%, from 6.8% to 8.2%.

Magellan and ONEOK have a nearly identical yield of 6.7%. And ONEOK is offering potentially almost 15% long-term returns. That’s 3% better than what the 0.8%-yielding Nasdaq will likely deliver.

In other words, if management executes well on this deal, you can enjoy a very safe 6.7% yield today and potentially double your money every five years for the next few decades.

I love this deal, analysts like this deal, all three rating agencies like this deal (or at least call it neutral), and the bond market like this deal.

This is the best organized and most lucrative midstream deal I’ve ever seen.

And Magellan investors like us can lock in a 24% profit.

For those who have been with us a while, you’ll know this is nearly ten times larger than our cumulative losses in VF Corp, Kilroy, and Highwood. In those cases, our risk-management rules protected and limited our losses to 2.4% in total.

As part of ONEOK, Magellan investors aren’t just making a fat profit; they now own a much stronger and faster-growing company. One that the rating agencies and the bond market expect to keep growing steadily through at least 2051.

One more thing to note about taxes. As an MLP, Magellan has a K1 tax form. This is a taxable event.

But if you bought Magellan since the launch of Fortress, the tax liability will be small. Only investors who have owned Magellan for years will have a sizeable tax bill.

Whether you sell today to buy ONEOK or wait a few months to get your OKE shares when the deal closes, the tax treatment will be nearly identical. In fact, it will be 98.5% the same.

As always, we are not tax professionals and can only give general commentary. Make sure to consult an accountant or tax professional for your personal situation.

In our next Fortress issue, I’ll go into full detail on why ONEOK’s acquisition of Magellan creates one of the safest 6.7% yields on earth and a potentially life-changing opportunity.

Actions To Take

In this section, I’ll cover the latest with our portfolio companies.

And every week, I share a video update on the overall state of the economy.

The topics range from debt ceiling deadline fears… likelihood of a recession… what interest rate hikes could look like and what they’ll mean… inflation and jobs number breakdowns… the little-known factors impacting our economy… and much more.

Make sure to follow along there to catch up on the latest and see how it could affect your wealth, and how our Fortress Portfolio should be resilient against the worst setbacks the markets can throw at us.

I welcome your questions and will try to answer as many as I can in the weekly update videos and these monthly newsletters.

Just remember I can’t give individual investment advice. But I can provide information and general guidance for the average investor. Write in with your questions here.

Answer: The reason for not using a trailing stop is that long-term buy-and-hold investing is the most proven way for regular people like you and me to grow our wealth and income over time.

Even perfectly timing the economy doesn’t beat buy and hold outside of the Great Depression. And even then, perfectly timing the economy only results in 2% better returns.

The reason for using stops at all is that 44% of all stock investments turn into disasters.

Fortress is heavily invested in energy stocks, and 65% of all energy stocks fall 70+% and never recover.

We focus on midstreams because these are the safest and most stable cash flows, the utilities of the sector.

The reason for a stop is to ensure that if the wheels fall off the bus, you minimize your losses to levels that are easily recouped from dividends alone.

For example, we took a 0.3% loss on VFC and 1.2% when we were stopped out of  KRC and HIW.

That’s a 2.7% cumulative loss, and our dividends will recoup that within 5 months.

(The sale of Magellan to buy OKE will result in an approximately 24% gain, that’s almost 10X our cumulative loss. See today’s issue above for the details on this transaction.)

So why 30% and not 20%? Because every company will suffer a 20% decline at some point. Even JNJ, the lowest-volatility company in the S&P, experiences 20+% bear markets.

And this is why we use hard stops and not trailing stops.

The goal of the stop loss is to prevent owning the next GE (which spectacularly fell and kept falling), not to lock in short-term gains.

For example, consider USB. That has a nearly 150% upside to fair value by 2025.

If the price returns to fair value by 2025, the thesis on USB has worked. It didn’t blow up, just as we said it wouldn’t.

If you used a trailing stop, you’d be selling and paying taxes on gains the first time the price fell 30%.

When we hit 100% gains, our risk management requires us to sell half, recoup our original investment and “start playing with house money.”

But beyond that, we let world-beater winners run because stops aim to minimize fundamental risk, not stock price risk.

Fundamental risk is, as Buffett explains, purely about not losing your principal, not about minimizing volatility.

Safe investing,

Adam Galas Chief Analyst, Fortress Portfolio