5 High Dividend Blue Chip Stocks to Buy Now
By: Ned Piplovic,
High dividend blue chip stocks offer an easy and reliable way to build wealth and generate strong returns over extended periods of time.
In an era of instant gratification, flash trading and promises of instant wealth by investing in the initial public offering (IPO) of the latest “unicorn,” tried-and-true investment methods of building wealth slowly over the long term still work. Some of the get-rich-quick schemes occasionally do bear fruit and deliver instant wealth. However, the low success rates and high risk of these investments are too much for most people, who are generally risk-averse and are willing to settle for slightly lower overall returns in exchange for lower risk and a higher success rate, which is exactly what high dividend blue chip stocks offer.
Investors borrowed the term “blue chip” from gambling, where poker chips with the highest denomination were traditionally blue. The exact origin of the phrase in investing terms is unknown. However, one version claims that in the 1920s an early employee of a company that would evolve to become Dow Jones saw several stock trades at prices significantly higher than average prices at the time. This employee supposedly called these equities blue-chip stocks. Initially used as a term only for stocks with high share prices, the term has evolved to represent high-quality stocks that are able to deliver reliable returns over long periods and resist large declines during economic downturns and bear markets.
Unlike formal market indices, such as the S&P 500, the NASDAQ Composite, FTSE 100, etc., that have specific requirements, the blue-chip stocks are not defined precisely and investors use different criteria to define such stocks. However, even without a specific definition, indices like the Dow Jones Industrial Average (DJIA) or other lists of equities with stable long-term growth , such as the Dividend Aristocrats, offer a selection of equities that justify the high dividend blue chip stocks designation.
Regardless of the inclusion on a list or index of high dividend blue chip stocks, these lists should be only the starting point for every investment analysis. As with every investment decision, investors must conduct their own research and due diligence to identify the equities that meet the specific and unique requirements of their investment portfolio strategy.
To begin the analysis below is a list of five high dividend blue chip stocks. For other stocks to consider, please read our article 7 High Dividend Stocks to Buy Now.
5 High Dividend Blue Chip Stocks to Buy Now: #5
Cisco Systems, Inc. (NASDAQ:CSCO)
Dividend Yield: 3.2%
In the second quarter of 2020, Cisco Systems boosted its quarterly dividend payout amount 2.9% from $0.35 to the current $0.36 distribution amount, and has kept the payment level since. This new quarterly dividend amount converts to a $1.44 annualized payout and a 3.2% forward dividend yield, which is in line with the company’s own 3.02% average over the past five years.
The company has hiked its annual payout amount every year since beginning dividend distributions in 2011. Over the past nine years, Cisco Systems enhanced its annual dividend over six-fold, which is equivalent to an average dividend growth rate of more than 23.1% per year.
Cisco’s share price hit its 20-year low in late 2002 after the dot-com crash. Notwithstanding occasional volatility, including a 50% drop in the aftermath of the 2008 financial crisis, the share price advanced more than five-fold since the 2002 low. The share price more than doubled just over the past five years. The overall market correction in early 2020 meant the stock suffered a 2.5% loss, but its three-year return is 23.6% and the overall outlook is still very positive.
5 High Dividend Blue Chip Stocks to Buy Now: #4
The Coca-Cola Company (NYSE:KO)
Dividend Yield: 3.3%
As a staple of blue-chip stocks for decades, the Coca-Cola Company continues rewarding its shareholders with a combination of substantial dividend distributions and steady long-term appreciation. The company has been rewarding its shareholders with dividend income distributions for more than 125 years. Furthermore, with 58 years of consecutive annual dividend hikes the Coca-Cola Company is not just a Dividend Aristocrat, but also a member of a small group of only a few Dividend Kings — companies with more than five decades of consecutive annual dividend boosts.
Just over the last two decades, the company increased its annual dividend amount five-fold, which corresponds to an 8.4% average annual growth rate. Even over the past five years, the dividend growth rate is still 4.4% per year. The current quarterly payout of $0.41 corresponds to a $1.64 annualized payout and yields 3.3%.
The decline of the restaurant industry in 2020 negatively impacted Coca-Cola’s recent returns, which are showing a 9.1% loss in the trailing 12 months. In the last three and five years, however, the company has returned 18.3% and 38.9%, respectively.
5 High Dividend Blue Chip Stocks to Buy Now: #3
Caterpillar, Inc. (NYSE:CAT)
Dividend Yield: 2.1%
Another Dividend Aristocrat, Caterpillar extended its streak of annual dividend hikes with a dividend hike of nearly 20% from the previous $0.86 payout to the current $1.03 distribution. This new payout amount converts to a $4.12 annual distribution and currently yields 2.1%. Over the last 20 years, the company has raised its annual dividend payout more than six-fold for an average annual growth rate of nearly 10%. The current dividend payout ratio of 67.9% is significantly below the company’s own five-year average but not far off from the 50% cap on what is considered a sustainable payout.
Caterpillar, Inc. saw a great deal of success in the trailing 12 months — its one-year returns were 38.3%, making up all of the company’s three-year growth of 26.2%. Its five-year returns are nothing to scoff at either, rewarding long-term investors with 276.2% returns, nearly quadruple its starting price.
5 High Dividend Blue Chip Stocks to Buy Now: #2
Chevron Corporation (NYSE:CVX)
Dividend Yield: 5.4%
At the beginning of 2019, Chevron boosted its dividend distribution 8.4% from the $1.19 quarterly amount paid last year to the $1.29 quarterly distribution this year. This current quarterly amount corresponds to a $5.16 annual distribution and a 5.4% forward dividend yield, which is in line with the company’s five-year average yield.
Tracing the beginning of its dividend distributions back to 1913, Chevron has delivered annual dividend boosts for the past 34 consecutive years. Just over the past two decades, the company enhanced its total annual dividend nearly four-fold, which corresponds to a 7% average annual growth rate.
Additionally, the company lowered its dividend payout ratio from the 220% average over the past five years and 82% last year to the current 61% payout ratio. While still slightly above the 50% level considered sustainable, Chevron’s payout ratio is moving in the right direction, which indicates that the company’s earnings should be sufficient to cover future dividend hikes.
5 High Dividend Blue Chip Stocks to Buy Now: #1
Verizon Communications, Inc. (NYSE:VZ)
Dividend Yield: 4.4%
The company has enhanced its quarterly dividend payout amount 1.6% from the $0.62 quarterly dividend distribution in the previous period to a $0.63 quarterly dividend payout that its sustained through its next dividend payment in February 2021. This new quarterly dividend payout amount is equivalent to a $2.51 annualized distribution and a 4.4% forward dividend yield.
Even with the rising dividend payouts, Verizon’s current yield is slightly below the company’s 4.5% five-year average yield because the asset appreciation outpaced the dividend growth over the past year. After six years of flat annual dividend distributions from 1999 to 2004, Verizon delivered 14 consecutive annual dividend boosts. A 60% dividend advancement over that period corresponds to an average growth rate of 2.4%.
While experiencing increased volatility, Verizon’s share price still gained 0.7% to combine with the dividend income payouts for a total return of almost 5.1% over the past 12 months. The total return over the past three years exceeded 24%. Furthermore, the five-year total return is approaching 62%.
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Ned Piplovic is the assistant editor of website content at Eagle Financial Publications. He graduated from Columbia University with a Bachelor’s degree in Economics and Philosophy. Prior to joining Eagle, Ned spent 15 years in corporate operations and financial management. Ned writes for www.DividendInvestor.com and www.StockInvestor.com.