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Competitive advantages make these 3 companies great buys

Investors will often hear analysts refer to a company’s moat, wide or narrow, the term is used to describe a sustainable advantage a company enjoys over other companies in the same industry. If managed properly, this advantage should allow a company to continually grow revenues and profits.

Hundreds-of-years ago moats were built around castles and other ancient fortifications to defend them against marauding invaders attempting to steal the riches enjoyed by the castles’ owners. The wider the moat the more impregnable and glorious the castle.

Companies with metaphorical moats tend to be some of the safest and best investments over long-term horizons. Here are a few to consider.

With a regional monopoly and very limited competition Sydney Airport Holdings Ltd (ASX: SYD) looks a very solid long-term growth prospect. The airport just announced that 2013 was its busiest ever year with 37.9 million passengers and December 2013 its busiest ever month serving a total of 3.4 million passengers. Over the year Chinese passenger growth numbers were up 14.9% and December 21 was the busiest day ever for its international terminal.

It has a trailing dividend yield of around 5.8% at the current price of $3.86. As a bonus, the dividend is expected to rise slightly in 2014. The company is due to deliver full-year results for FY 2013 in less than three weeks’ time on 26 February.

Bargain-hunting investors could look towards a company with the advantage of owing one of the world’s most powerful brands. Coca-Cola Amatil Limited’s (ASX: CCL) share price has been touching two-year lows this week as investors fret over the dual concerns of weaker consumer sentiment and increased competition from rival, Schweppes, among others.

The company had a tough 2013, but that’s now firmly reflected in the share price and between 2001 and 2012 it created a total shareholder return of 373% versus the S&P/ASX 100 Index’s (Index: ^XTO) of 145%. With its re-entry into the beer market, competitive advantages and attractive trailing dividend yield of 5.4%, now looks a great time to snap up this company’s shares.

Another iconic business with a wide moat is supermarket giant Woolworths Limited (ASX: WOW). It just released first-half sales figures up 6% on a prior corresponding period many considered impressive in itself. After a bumper FY 2013 this business’s domination of the supermarket sector alongside rival Wesfarmers Ltd  (ASX: WES) means it looks set to comfortably deliver mid-single-digit profit growth long into the future. With defensive revenue streams and a steady and growing dividend, it ticks all the boxes for investors looking for reliable long-term returns.

Foolish takeaway

All the companies covered above look good buys for investors looking to develop the core of their portfolio. With long growth runways, respected management and dominant market shares, there’s little to suggest anything other than a positive future.

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Motley Fool contributor Tom Richardson owns shares in Sydney Airport. You can find him on twitter @tommyr345

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