High-Dividend Blue-Chip Stocks
Being an income investor requires a few things. For starters, a company’s business model needs to be simple to understand and the investor needs patience when holding onto shares. A steady and reliable payment in a form by a dividend is also necessary. But with so many companies on the market paying a dividend, how do you determine which are worth your investment?
When looking at businesses, I would recommend blue-chip dividend stocks. These are companies with a large market cap, a long history of rewarding shareholders, and a simple business model.
The great thing about blue-chip companies is that they sell high-quality branded products or services that are widely used. This helps these companies perform better than others in a declining economy, or even in a recession. These companies are also considered less volatile investments and are widely held by both institutional and retail investors.
The earnings generated from these companies are protected from inflation. This cost is normally passed down to their customers and shareholders tend to receive a growing dividend payment. Patient investors benefit from such a payment because the yield on the average cost of shares is only going to go higher over time.
Below is what I feel are the top 10 best blue-chip dividend stocks to hold for the long term.
Blue-Chip Dividend Stocks List 2017
| Company Name | Stock Symbol | Price | Dividend Yield |
| Verizon Communications Inc. | VZ | $49.81 | 4.64% |
| The Coca-Cola Co | KO | $42.49 | 3.48% |
| AT&T Inc. | T | $42.07 | 4.66% |
| Chevron Corporation | CVX | $113.83 | 3.8% |
| International Business Machine Corp. | IBM | $180.80 | 3.1% |
| Wal-Mart Stores Inc | WMT | $70.76 | 2.88% |
| Johnson & Johnson | JNJ | $123.63 | 2.59% |
| PepsiCo, Inc. | PEP | $110.11 | 2.73% |
| Emerson Electric Co. | EMR | $60.39 | 3.18% |
| Target Corporation | TGT | $57.95 | 4.14% |
1.Verizon Communications Inc.
Verizon Communications Inc. (NYSE:VZ) is the largest telecommunication company in the U.S., with more than 140 million customers across the country.
A lot of cash flow comes from the business not requiring a lot of additional reinvestment outside of maintenance, only requiring a large capital investment for initial infrastructure. This is evidenced by the yearly revenue, which sees continued growth. When there is inflation in the cost of doing business, it is reflected in the pricing of the services provided.
2. The Coca-Cola Co
The Coca-Cola Co (NYSE:KO) stock is in the business of supplying customers with a variety of beverages.
It is in the consumer staples segment of the market, which are products used by consumers in both an up and down economy. Coca-Cola will similarly see no impact in the top and bottom lines of its financials statements, and in fact should see growth over time.
Shareholders have enjoyed a similarly growing dividend payment. The dividend, reviewed every February, has seen an increase for 54 consecutive years.
The dividend yield for KO stock is 3.48%, based on a trading price of $42.49.
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3. AT&T Inc.
At&T Inc. (NYSE:T) stock operates in an an oligopoly, with only a few direct competitors. As a result there, the company owns a larger market share.
For investors, these are the type of companies worth considering, because their revenue, reported on a quarterly basis, does not see much volatility.
This is shown in the daily movement of T stock, measured by its beta of 0.33, compared to 1.0 for the overall market. This means on a down day in the market, T stock would be trading lower by 0.33% on average for each one percent that the market is trading lower.
4. Chevron Corporation
Chevron Corporation (NYSE:CVX) stock has operations around the world in the energy and chemical segment of the market.
I would consider CVX stock one that rewards growth- and income-oriented investors. One key growth driver for CVX stock is the price of oil, which is roughly half of what it was back in 2014 and seems to have bottomed out in 2016. However, it now seems to be moving gradually higher. If this trend continues, gross and net income should both go up, which should be reflected in the stock price.
Income investors are rewarded with a growing dividend, which is currently 3.8%, with the trading price at $113.83. The dividend could see even more growth as the price of oil continues on its current upward trend.
5. International Business Machine Corporation
International Business Machine Corp. (NYSE:IBM) is a company that has a history of over 100 years in the technology sector, one of the most difficult sectors due to its rapidly changing environment. IBM stock is one of the best blue-chip stocks for the long term because of the proactive nature of its management. When there is a change in the technology space, IBM would look to either increase or decrease their market exposure as necessary.
IBM stock would be put in the same category as companies such as Amazon.com, Inc. (NASDAQ:AMZN) and Alphabet Inc (NASDAQ:GOOGL, NASDAQ:GOOG), which many investors want exposure to due to their high rate of growth. However, the issue with these companies is that there is no dividend to satisfy the needs of income investors.
IBM stock currently pays a dividend of 3.1% on a quarterly basis. This is according to the present trading price of $180.80. IBM is a business that sees recurring revenue, increasing its dividend annually as a result.
6. Wal-Mart Stores Inc
Wal-Mart Stores Inc (NYSE:WMT) stock is trading near its all-time highs and would be considered cheap based on its valuation. The evidence is in the price-to-earnings (P/E) ratio of 16 times, which is a discount of more than one-third compared to the S&P 500 index, which has a ratio of 26.7 times. For WMT stock to trade at a higher P/E multiple, there would need to be growth in the earnings, which would result in investors bidding the shares higher.
One area of growth for Wal-Mart has been e-commerce. Last year, Wal-Mart started to get more aggressive to expand into this area by acquiring e-commerce business Jet.com, Inc. With the purchase, Wal-Mart can begin a new strategy using its own brand and have the e-commerce side of the business account for a larger piece of earnings. (Source: “Walmart Completes Acquisition of Jet.com, Inc.,” Wal-Mart Stores Inc, September 19, 2016.)
E-commerce is a preferred business strategy because this segment has seen growth in the double digits. While growth in brick-and-mortar stores is much lower. Investors also expect companies to adapt and change their business plans to meet current trends and demands, as such actions lead to an increased share price and higher dividends.
7. Johnson & Johnson
Johnson & Johnson (NYSE:JNJ) is a company with a global presence, focused on research and development, manufacturing, and selling healthcare products.
JNJ stock is one of the best blue chip-dividend stocks for the long term, having paid a dividend since 1972 and growing ever since.
Johnson & Johnson has also been involved in share buybacks. Repurchasing shares results in fewer outstanding shares, so shareholders end up holding more of the company and, as a result, greater worth.
Share repurchases also serve as a tax-efficient means of returning money to shareholder, with no tax consequences until the shares are no longer owned.
8. PepsiCo, Inc.
PepsiCo, Inc. (NYSE:PEP) is a great example of a blue-chip dividend stock. PEP stock has been paying a dividend since 1965 and has been increasing the annual dividend consistently since 1973. This streak can continue, since just over half of earnings are paid out via the dividend.
When it comes to the business itself, PepsiCo is simple to understand, and its earnings are predictable. There is also earnings growth each year, due to PEP stock’s protection against the cost of inflation.
PEP stock is trading at $110.11 and is offering a dividend yield of 2.73%.
9. Emerson Electric Co.
Emerson Electric Co. (NYSE:EMR) stock is a global manufacturing company involved in industrial automation, climate technology, and process management. This adds to the diversification of the business because, if one division is seeing a slowdown, another could see growth to offset it. This has helped Emerson’s net income be generated at a steady rate.
This has rewarded shareholders in the form of a dividend; one that has been growing since 1957. As a result, EMR stock is part of the exclusive S&P 500 Dividend Aristocrats Index. This index includes companies that have grown their dividend for at least 25 years and are a part of the Fortune 500.
Looking ahead, it is possible to see the dividend continue to grow. This is based on the payout ratio, which is the percentage of earnings that is given to shareholders in the form of a dividend. For EMR stock, this ratio currently represents 75% of earnings, with the rest reinvested back into the business.
10. Target Corporation
TGT stock is trading very cheap when compared to the S&P 500 index, with a P/E ratio of 12.6 times.
When a company is trading at such a discount, it means that investors are either ignoring the name or there is no growth in the company. Based on Target’s financials, I believe it’s the former. By being a patient investor, a dividend could be earned until the market realizes that TGT stock is trading at such a discount.
Target’s growth has been coming from the online side of the business. Each quarter, Target’s e-commerce business increases by double-digits, leading management to allocate more capital toward that area. This is more of a long-term strategy so, while the results should be reflected in the quarterly earnings, a long-term view should be taken.
Another reason why TGT stock should not be ignored is that, each year, the revenue is seeing continued growth, including during the most recent recession.