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While capital gains represent an exciting mechanism of profitability, market participants interested in the long haul may want to consider acquiring blue chip stocks. Levered to the biggest companies in the world, these public securities typically offer dividends or distributions of corporate earnings to stakeholders.
In addition to providing passive income, blue chip dividend stocks offer significant relevance under the current market paradigm. With inflation eroding the purchasing power of the dollar, dividend stocks can help mitigate pressure in the equities sector. In some cases, certain companies can provide reliable income.
At the same time, you want to look at long-term gains. Consider how well dividends can serve you as you approach retirement, save for big purchases or enter retirement. Although a company is not required to continue to pay dividends on its stock, you can get an idea of the likelihood of those dividends continuing by examining the company’s fundamentals and dividend history.
11 Best Blue Chip Dividend Stocks to Invest in
Here's a quick look at the best blue chip dividend stocks right now.
1. Apple Inc. (AAPL)
Among the world’s elite enterprises, Apple Inc. (NASDAQ: AAPL) is an American multinational technology firm headquartered in Cupertino, California. Steve Jobs, Steve Wozniak and Ronald Wayne founded Apple in 1976 to develop and sell personal computers. Over the years, the company evolved to pioneer several smart devices, most notably the iPhone. This blue chip generated $66.8 billion U.S. dollars in revenue from iPhone sales alone in the first quarter of the 2023 financial year.
One of the top attributes of AAPL stock is the underlying social cachet. Whenever the company launches new products, legions of fans line up to acquire them. Such magnitude of consumer loyalty is almost unprecedented. Recent preorder sales for the iPhone 14 in a limited yellow color caused the entire Apple Store to go offline from an influx of online traffic. This experience reflects how even under troubling economic circumstances, Apple consumers keep coming back for more.
However, one major headwind to monitor is supply chain disruptions. Like other consumer electronics firms, Apple remains highly dependent on the proper flow of critical commodities and production lines. AAPL is hardly the most generous of dividend-paying blue chip stocks.
2. Coca-Cola Co. (KO)
Another American icon, Coca-Cola Co. (NYSE: KO), represents more than just a business brand. Effectively, it symbolizes free-market capitalism. Invented in the late 19th century by John Stith Pemberton in Atlanta, Georgia, the original Coca-Cola was marketed as a temperance drink and intended as a patent medicine. Today, the soft drink is sold in over 200 countries, with consumers worldwide drinking billions of servings every day.
The major pro bolstering KO stock as one of the top blue-chip stocks is market resilience. In many ways, Coca-Cola is recession-resistant. The product benefits from the trade-down effect, as consumers eschew buying expensive lattes at popular coffeehouses and instead opt for a can of cola. Also, the addictive nature of the product helps pad the bottom line.
On the negative side, Coca-Cola finds itself on the wrong end of contemporary consumer behaviors. Studies show that millennials prefer fresh, healthy and natural beverages over sugary concoctions.
3. Progressive Corp. (PGR)
Hardly the most exciting name among blue chip stocks, Progressive Corp. (NYSE: PGR) deserves special consideration for long-term investors. One of the nation’s largest insurance carriers, Progressive was founded in 1937. Households perhaps best know the brand thanks to its fictional salesperson character Flo, featured in advertisements over the years.
Lifting the bullish narrative for PGR stock is the underlying permanently relevant business. No matter whether the economy operates under optimistic or pessimistic circumstances, people need insurance coverage. In fact, Progressive notes that car insurance is mandatory in almost every state, affording the company a steady demand stream.
What’s not so appealing for Progressive stock is that the underlying firm doesn’t pay a generous dividend yield. Should the economy pivot back to a more confident profile, PGR could become less appealing. However, it’s also worth noting that PGR is up nearly 20.09% on a year-to-date basis while the benchmark equity indices are still negative during the same period.
4. NextEra Energy (NEE)
The regulated utility of NextEra Energy (NYSE: NEE), Florida Power & Light, distributes power to more than 5 million customers in Florida. FP&L contributes more than 60% of the group's operating earnings. The renewable energy segment generates and sells power throughout the United States and Canada. Consolidated generation capacity totals more than 50 gigawatts and includes natural gas, nuclear, wind and solar assets.
5. Nike (NKE)
Nike Inc. (NYSE: NKE) is the largest athletic footwear and apparel brand in the world. It designs, develops and markets athletic apparel, footwear, equipment and accessories in six major categories: running, basketball, football (soccer), training, sportswear and Jordan. Footwear generates about two-thirds of its sales. Nike's brands include Nike, Jordan and Converse. Nike sells products worldwide and outsources its production to more than 300 factories in more than 30 countries. Nike was founded in 1964 and is based in Beaverton, Oregon.
6. Mastercard (MA)
The other major credit card issuer, aside from Visa, Mastercard Inc. (NYSE: MA) has long been at the top of the blue chip food chain. Mastercard (NYSE: MA) is the second-largest payment processor in the world, having processed close to $6 trillion in purchase transactions during 2021. Mastercard operates in over 200 countries and processes transactions in over 150 currencies.
Investing in a credit card issuer is generally seen as a good growth strategy because payment processing and POS systems are likely to grow in stature and volume over time. Plus, the firm has the flexibility needed to move into other spaces like crypto, retail registers and lending.
7. 3M (MMM)
3M Co. (NYSE: MMM) is a multinational conglomerate that has operated since 1902, when it was known as Minnesota Mining and Manufacturing. The company is well known for its research and development laboratory, and it leverages its science and technology across multiple product categories. As of 2020, 3M is organized into four business segments: safety and industrial, transportation and electronics, healthcare and consumer.
Nearly 50% of the company's revenue comes from outside the Americas, with the safety and industrial segment constituting a plurality of net sales. Many of the company's 60,000-plus products touch a variety of consumers and end markets.
8. Broadcom (AVGO)
Broadcom Inc. (NASDAQ: AVGO) — the combined entity of Broadcom and Avago — boasts a highly diverse product portfolio across an array of end markets. Avago focused primarily on radio frequency filters and amplifiers used in high-end smartphones, such as the Apple iPhone and Samsung Galaxy devices, in addition to an assortment of solutions for wired infrastructure, enterprise storage and industrial end markets. Legacy Broadcom targeted networking semiconductors, such as switch and physical layer chips, broadband products (such as television set-top box processors) and connectivity chips that handle standards such as Wi-Fi and Bluetooth. The company has acquired Brocade and CA Technologies, Symantec's enterprise security business, and has a pending deal to acquire VMware to bolster its offerings in software.
9. Bank of Nova Scotia (BNS)
Bank of Nova Scotia (NYSE: BNS) is a global financial services provider. The bank has five business segments: Canadian banking, international banking, global wealth management, global banking and markets and other. It offers a range of advice, products and services, including personal and commercial banking, wealth management and private banking, corporate and investment banking, and capital markets. The bank's international operations span numerous countries and are more concentrated in Central and South America.
10. Archer-Daniels-Midland (ADM)
Archer-Daniels-Midland Co. (NYSE: ADM) procures, transports, stores, processes and merchandises agricultural commodities, products and ingredients in the United States, Switzerland, the Cayman Islands, Brazil, Mexico, Canada, the United Kingdom and internationally, operating in three segments: Ag Services and Oilseeds, Carbohydrate Solutions and Nutrition.
11. The Travelers (TRV)
Travelers Companies Inc. (NYSE: TRV) and its subsidiaries offer a range of commercial and personal property, casualty insurance products and services to businesses, government units, associations and individuals in the United States and internationally, operating through three segments: Business Insurance, Bond & Specialty Insurance and Personal Insurance.
Understanding Blue Chip Dividend Stocks
Among the top reasons to consider blue chip dividend stocks is that the underlying business tends to be reliable. While exceptions exist, when investors focus on this market subsegment, they align their funds with companies that offer the largest market capitalization in the world and with enterprises that are profitable. Not all stocks will pay dividends, so you have to choose the companies that work best for you and your financial situation.
The payouts undergirding dividend-paying stocks don’t just materialize out of thin air. Fundamentally, a company must be profitable before it can distribute its earnings across its shareholder base. Under a bullish stock market, organizations with generous payouts can accentuate an equity portfolio’s total returns.
However, it’s under bearish conditions that blue chip dividend stocks come alive. Scientifically, many experts studied the concept of loss aversion. According to the American Psychological Association, this principle asserts that “the subjective weight of penalties is larger than that of potential rewards. Hence, for example, people should avoid lotteries that give a 50-50 chance for equal-sized gains and losses because the negative repercussions weigh heavier than the positive ones.”
During severe market downturns – such as the one investors saw during the first half of 2022 – the crimson-laden ink on trading screens can create panic, leading to worsening decisions. While no one investment is bulletproof, blue chip stocks that pay good dividend yields tend to weather the storm better than other securities. You can build a strong portfolio the more money you make, and you can also invest in some of the biggest companies in the world as a way of shoring up your finances.
Blue chip dividend stocks are tied to established businesses (often with a long track record of success) that are consistently profitable. Therefore, during uncertain times, investors should consider these market ideas. Remember, though, that you must research these businesses and how they are performing because some of these stocks could falter. Diversity is the best policy. You can diversify your portfolio and the dividend stocks you hold. Some stocks provide regular income, but others provide windfall cash when you sell them off.
For example, you may hold blue chip dividend stocks because you like the quarterly dividend payouts. At the same time, you may hold stocks like Chipotle Mexican Grill Inc. (NYSE: CMG) until you want to sell it for a large purchase. Maybe your child needs a better musical instrument because they’re on the fast track to majoring in music in college? You can sell your long positions for cash needed to cover that purchase. Meanwhile, you can hold your blue chip stocks and enjoy the dividends. You can supply yourself with income in a way that’s almost impossible to find elsewhere.
If you’re not getting the dividend yields that you want, you may want to exit a position and move into another blue chip stock that works best for your portfolio. At the same time, you want to remain abreast of how each business is functioning within its industry. Apple is a blue chip stock, but no one could have guessed how far it could go right before the iPhone was introduced. As a result, those blue chip stockholders gained that much more. You need to feel confident that a blue chip you’re holding is going to keep rising or at least avoid dropping.
Benefits of Blue Chip, Dividend Stocks
Although the concept of betting it all on a hot penny stock is a much-celebrated one, the harsh reality is that such ventures usually result in financial disappointment. Some of the top blue chip stocks today used to trade in the basement of leading exchanges. Nevertheless, for every outstanding success, many failures and horror stories exist.
While not taking any risk also represents an investing mistake, blue chip dividend stocks provide a healthy baseline for virtually all investors. They might not make their stakeholders wildly rich in the short run. However, their slow-and-steady approach builds confidence. During market conditions such as the present cycle, confidence commands a premium.
Below are the key benefits of investing in dividend-paying blue chip stocks.
Though not a typically openly advertised sentiment, a significant component of the excitement associated with speculative market ventures is the lack of predictability. By not having much confidence in a particular stock’s forward trajectory, in a way, anything can happen. Indeed, the less confidence you have about a stock’s trajectory – essentially the beta of the security – the greater the potential upside. The problem is that such equities typically flounder. On the other hand, blue chip stocks provide predictability because of their long-established businesses. They may not provide resounding returns but they’re less likely to steer investors wrong.
The predictability of blue chip stocks provides a natural segue into discussing their probability of success. Usually, the equities sector represents a balance. If investors want greater return potential, they must sacrifice the probability of attaining that return. For dividend-paying blue chip stocks, the opposite narrative typically rings true. If investors want a greater probability of upside success, they sacrifice the maximum return potential undergirding success. During a bear market cycle, many astute buyers are willing to take this tradeoff.
While dividend-paying blue chip stocks provide passive income to their stakeholders, it’s useful to think of this equity subsegment as a hedge within a hedge. In other words, should the underlying security encounter headwinds, the quarterly (or sometimes monthly) payouts can help mitigate the downward shock. Or, in the case of a rising stock price, the dividend helps pad the total return to the stakeholder.
What to Look for in Blue Chip Stocks
Although investors may be tempted to focus their research on blue chip stocks with the biggest payouts, like anything in the equities arena, this subsegment also features distinct nuances to be cognizant of. Generally speaking, market participants want to pay attention to the long-term fundamentals of dividend-paying stocks. Just because a company provides passive income today doesn’t mean it will do so tomorrow.
Below are key tips to consider before buying dividend-paying blue chip stocks.
While blue chip stocks command a large market cap, they may not always maintain this lofty position. In particular, investors must pay attention to technology-dependent businesses. Should a disruption in the industry materialize, impacted blue chip stocks could end up falling in a hurry.
When analyzing blue chip dividend stocks, it’s important not just to consider what they’re paying to stakeholders today but also how long they have been on a consecutive payout roll. For example, conservative (or risk-averse) investors may want to target their prospective market ideas within a list of dividend aristocrats or companies that have increased annual dividend payments for the past 25 years. Also, as a bonus tip, dividend aristocrats want to keep their status, so their payouts tend to be more reliable than most firms’ payouts.
Boring is Beautiful
Depending on the market circumstances, acquiring blue chip stocks in “boring” industries may be incredibly shrewd. During periods of economic pressure, insurance companies can potentially provide stable passive income opportunities. Despite financial troubles, consumers recognize that skimping on insurance coverage could potentially turn a temporary, short-term problem into a multi-year crisis. Therefore, insurance providers may be more resilient than other business categories when the waves turn choppy.
Companies that invest in innovative technology may remain relevant for longer because they can stay in the headlines. Most people want to invest in new technology, but that doesn’t always mean that you’re investing in new companies.
Make sure that the stocks in which you invest are part of solid market trends that will allow them to gain. If not, you may lose money when certain stocks don’t grow in the manner you anticipated.
Refine Your Strategy
Blue chip stocks offer investors the potential for passive income and long-term capital appreciation. However, as with any market idea, it pays to conduct your own due diligence before investing. By researching a company’s fundamentals, analyzing its dividend history and considering current market trends, investors can potentially find attractive opportunities within this equity subsegment.
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Frequently Asked Questions
What is dividend risk?
Dividend risk is the possibility that a company may reduce or eliminate dividends because of financial difficulties, changes in strategy or economic downturns. These situations can negatively impact the value of a company’s share price and lead to less income for investors relying on dividend income, so it is important to analyze a company’s finances and history before investing.
Should you buy blue chip dividend stocks?
The decision to buy blue chip dividend stocks depends on investment goals and risk tolerance. They offer steady income but may not have high growth potential. Research and consulting with a financial advisor is important before making investment decisions.
Are blue chip stocks foolproof?
Blue chip stocks are not foolproof and neither is dividend investing. While blue chips are established, reputable companies with a long history of stable performance, they can still be affected by economic downturns, industry changes and other external factors. No investment is completely risk-free, and investors should do their own research and exercise caution when making investment decisions.
Blue Chip Dividend Stocks Methodology
To identify top blue chip dividend stocks, Benzinga conducted a thorough analysis of established, profitable companies with a history of paying dividends. It evaluated factors such as reliability and profitability, dividend yield, market resilience, dividend growth and consistency, financial health, industry leadership and diversification. Benzinga conducted in-depth research and analysis of each company's financial statements, dividend history, market outlook and industry trends. Investors should conduct their own research and consider their individual financial goals and risk tolerance before making investment decisions.