Investing in blue-chip stocks with dividends is a match made in heaven. Blue-chip stocks have had a history of producing market-beating returns, and if you blend them with dividends, there’s nothing like it. Investors who are looking for steady returns and minimizing their risk should opt for blue-chip stocks that offer dividends.
Investing in the biggest, strongest companies — known as blue-chip stocks — is a great way to earn solid returns with low downside risk. Blue-chip stocks belong to high-quality companies that are typically leaders in their sector. With incredible fundamentals, their stocks offer strong price returns to investors. Not all pay dividends, though, but such a combination is tailor-made for the current macroeconomic environment.
Photo of IBM (IBM) building as seen through the canopy of a tree. IBM logo is in large letters on side of building.
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Tech stocks have taken hiding in recent months, but IBM (NYSE:IBM) stock has been an anomaly. It gained a healthy 21% value in the past six months due to a relatively impressive operating performance. Moreover, it offers a highly attractive dividend with close to a 70% payout rate and a 4.74% yield.
IBM’s first-quarter results show a strong 8% jump in sales. It’s the first quarter for the new-look IBM, which completed its multi-year effort to transform its business. It believes it can continue growing revenues rapidly through its software business focusing on AI and cloud computing. Moreover, its sizeable consultancy business also generates an impressive $4.8 billion in sales during the first quarter, a 17% increase on a year-over-year basis.
Lockheed Martin (LMT)
A Lockheed Martin (LMT) Space Systems sign in Sunnyvale, California.
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Lockheed Martin (NYSE:LMT) is the largest defense contractor for the U.S. armed forces, which means its top customer has the deepest pockets. It has established itself as a clear leader in the industry with reliable income streams, remarkably consistent results, and the ability to withstand economic slowdowns. It boasts an enviable dividend profile, with 20 years of growth in payouts and an eye-catching yield of roughly 2.5%.
The ongoing conflict in Ukraine could potentially result in a revenue windfall in the coming years. Europe will be a key market for defense contractors, with several countries looking to beef up their defense capabilities. Finland and Sweden have indicated that they will be applying for NATO membership.
Moreover, Germany announced an upgrade to its fighter jets with a purchase of 35 F-35 fighter jets from LMT. I expect more countries in Europe to follow suit, which should offset the loss in sales from the Pentagon recently curtailing its shopping list with the company.
PepsiCo (PEP)
Cans of PepsiCo's (PEP) Pepsi soda are in a bucket of ice.
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Snacks and beverages giant PepsiCo (NASDAQ:PEP) continues to wow the market with its innovation and ability to weather the most difficult challenges. Inflation rates are near multi-year highs as consumer confidence remains at a low ebb.
Despite these challenges, its business is thriving, indicating its strong earnings beat and a dividend raise of 7 cents per quarter to $4.60 annually. It now offers an attractive forward dividend yield of 2.8%.
PepsiCo’s timeless brands have allowed it to effectively navigate the current macro-economic crisis. Despite supply chain pressures and a pullout from Russia, the company’s earnings per share during the first quarter shot up from $1.21 last year to $1.29 this year.
The encouraging result was due to effective cost and price management. Hence, its robust branding ability and pricing power make the stock an effective hedge against inflation.
The TJX Companies (TJX)
An outside shot of a T.J. Maxx (TJX) store in Romeoville, Illinois.
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The TJX Companies (NYSE:TJX) is a leading discount retailer with a proven track record of sustained sales and earnings growth. It’s been posting a steady increase in sales and profit gains over the past three decades, and its stock has performed well too.
The pandemic shut down the bulk of its stores, which severely impacted its results. However, the re-opening tailwinds will likely spark a comeback for the business in the upcoming quarters. Moreover, consumers are likely to favor discount retailers such as TJX amidst the inflationary pressures.
Its management is confident of better prospects ahead with higher-margin cash flows and sales growth over the next few quarters. Additionally, it has a $7 billion inventory on hand, compared to roughly $5 billion a year ago, which positions it incredibly well for the summer season. TJX stock offers a reasonable dividend payout to further sweeten the deal, with a 1.9% yield.
Lumen Technologies (LUMN)
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Lumen Technologies (NYSE:LUMN) is a telecom operator, similar to its peers, transitioning from traditional landline service to more advanced offerings such as fiber optics. The goal is to offer robust connectivity by expanding fiber optics capability and investments in other architectures.
LUMN stock trades at an attractive valuation under one-time forward sales, with a dividend yield of 8.5%. The beauty of the enterprise is that its dividend is covered purely through cash flows.
Lumen recently increased its free cash flow and EBITDA (earnings before interest, taxation, depreciation and amortization) guidance by $400 million. It now expects FCF to be at $2 billion to $2.2 billion while its adjusted EBITDA to fall in the $6.9 billion to $7.1 billion range. Its fiber business has been experiencing incredible growth of late and is likely to dictate its future direction.
McDonald’s (MCD)
McDonald's (MCD) building with logo at sunset
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McDonald’s (NYSE:MCD) is one of the most popular fast-food chains globally. Despite stiff competition and market saturation, it remains one of the juggernauts in the sector. It offers strong upside potential with its ability to outperform competitors in tough environments. Moreover, it boasts a spectacular dividend profile with a yield of 2.2% and 13 years of growth.
McDonald’s restaurants generate over $100 billion in sales each year, with no one closing close to its dominance. In the past couple of years, it benefitted from the push towards digital and home-delivery niches.
Its recently released first-quarter results showed 20.4% and 3.5% growth in Global and U.S. same-store sales, respectively. Additionally, digital sales comprised over 30% of system-wide sales for MCD’s top six markets.
Merck’s (MRK)
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Merck’s (NYSE:MRK) is one of the leading pharmaceutical giants with an extensive oncology portfolio. There are several drugs in its portfolio, including several cancer-fighting drugs, including Keytruda, Lenvima and others. These medicines offer solid competitive advantages, which brought over $5 billion in sales in the first quarter, representing 25% growth from the same quarter last year.
Experts project Merck is in for an incredible time ahead with the approval of multiple therapies. Apart from its cancer drugs, Merck’s human papillomavirus vaccine, Gardasil, and the recently released coronavirus pill, Lagevrio, could potentially rake in billions in sales.
The company has increased its dividend for the past 12 years, and its CFO Caroline Litchfield states that the company is committed to increasing its dividend over time.
On the publication date, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
