Big companies paying big dividends
What is a Blue Chip?
Blue-chip companies are very large companies that have been around for a long time and often have a reputation for being a leader in their industry. These companies are often characterized by stable and consistent growth with low volatility. For this reason, many investors often look to them as a source of stable growth to add to their portfolio.
Typically, blue-chip companies are more mature in their life cycle meaning they have already developed a reliable portfolio of revenue-generating products. This can also mean these companies are more focused on managing their products and making minor adjustments than developing completely new ones. As a result, blue chips are not normally high growth and instead reward their investors with much higher dividends and more stability.
In this article, we’ll look at a list of 10 well-known blue-chip stocks that boast strong dividends.
Companies in this list
- American Express AXP
- Chevron CVX
- Caterpillar Inc. CAT
- Home Depot HD
- Walmart WMT
- Texas Instruments Inc. TXN
- Procter & Gamble PG
- Abbott Laboratories ABT
- Bank of America BAC
- McDonald’s MCD
- The list is composed in no particular order
American Express (AXP)
Market Cap: $133 Billion
Dividend Yield: 1.03%
Business Focus: Business Credit Cards
Founded in 1850 American Express has been able to adapt and thrive in both the worst and best economic times in history. The COVID 19 pandemic era proves to be no exception when looking at both their stock price and the 2020 annual report.
The company’s credit cards account for over 20% of all credit card transactions in the United States and have around 112 million cards in force worldwide. While these numbers are down in 2020, the number of cards in force was only down by less than 2%.
Ultimately, American Express’s performance will be tied to their target customer of small to medium-sized businesses.
Chevron (CVX)
Market Cap: $212 Billion
Dividend Yield: 4.86%
Business Focus: Energy Production
While media and popular culture may make it seem like investing in oil or fossil fuel companies as a terrible thing. The fact is, we currently still need this form of energy for our society to function. Odds are you are probably using something every day that requires oil and it doesn’t have to be your car, plastic keys for example.
Chevron is a leader in oil production and while 2020 was a wild ride for oil prices where, at one point, financial prices for oil went negative. Chevron was still able to increase its dividend by 8% and return over $1.7 billion to its shareholders.
With recent changes in energy policy on fossil fuels in the United States pushing oil prices back above $65/barrel. It is likely that oil prices will remain at a profitable level for Chevron over the next few years.
Caterpillar Inc. (CAT)
Market Cap: $120 Billion
Dividend Yield: 2.02%
Business Focus: Design and Manufacture Machinery and Engines
If you believe construction is going to continue its strong upward trend, then Caterpillar is certainly a blue chip to consider. With roots dating back to the 1920s, Caterpillar has been able to entrench itself as an iconic American brand in heavy construction equipment as well as other things.
It may come as no secret that selling heavy equipment during a global pandemic might be a challenge, however, the boom on the other side might be. In the first quarter of 2021, Caterpillar was able to increase its sales and revenue by 12% from demand by end-users looking to make up for lost time in 2020.
Additionally, Caterpillar was able to maintain a strong balance sheet throughout the 2020 pandemic and continue to deliver dividends to its investors.
The Home Depot (HD)
Market Cap: $326 Billion
Dividend Yield: 2.15%
Business Focus: Largest Home Improvement Retailer in the US
Force people to stay at home and what will you get? Apparently, a massive increase in home improvement projects. If you’re an investor looking to capitalize on this opportunity, then The Home Depot is certainly on the list of companies to look at.
It may or may not surprise you to learn that the COVID 19 pandemic turned into a boom time for The Home Depot. Demand by people with a newfound apparent disgust of their house pushed sales for The Home Depot up 20% higher than in 2019. This led to an increase in diluted earnings of 16.5%.
Not only did investors in The Home Depot receive the over 2% dividend but also benefited from a sizable increase in share price.
Walmart Inc. (WMT)
Market Cap: $391 Billion
Dividend Yield: 1.57%
Business Focus: Discount Department and Grocery Stores
If you live in the United States, odds are you’ve been to a Walmart. That’s because 90% of Americans live within 10 miles of one. The appeal of having mostly everything you could need to buy at a reasonable price is one reason that drove it to be the massive multinational retailer it is today. But physical retail is under pressure and companies like Amazon have had a devastating effect on many.
So what is Walmart doing differently than most physical retailers? Basically leveraging its massive network of stores to offer many similar benefits people love about Amazon. To do this Walmart introduced Walmart Plus a membership program and Walmart Connect an advertising program in 2020.
The result has been an increase in revenue of nearly 7% in 2020 which is a massive increase in revenue for the world’s largest company by revenue.
Texas Instruments Inc. (TXN)
Market Cap: $175 Billion
Dividend Yield: 2.15%
Business Focus: Semiconductors “chips”
Most of us have heard about Texas Instruments because of a math class that required one of their calculators, however, this is actually not their main business. Texas Instrument’s main business is designing, developing, and manufacturing semiconductors.
What is a semiconductor? Well, according to Texas Instrument’s annual statement, “Semiconductors are electronic components that serve as the building blocks inside modern electronic systems and equipment. Semiconductors, generally known as ‘chips,’ combine multiple transistors to form a complete electronic circuit.” In more general terms, semiconductors allow machines to run programs and make computations.
The effect of COVID 19 was minimal according to Texas Instruments but did express caution about how it would impact supply chains. Regardless, owning Texas Instruments over the last 5 years not only would have given you a solid dividend but a return that beat the S&P 500.
Procter & Gamble (PG)
Market Cap: $331 Billion
Dividend Yield: 2.57%
Business Focus: Personal Health, Care, and Hygiene
The name Procter & Gamble may not be all too familiar but how about Tide laundry detergent, Bounty paper towels, Charmin toilet paper, or Gillette razors? These are just a small few of the recognizable brands Procter & Gamble is behind.
In recent years Procter & Gamble has moved to streamline its portfolio of products to only 65 high-impact daily use brands. This has allowed the company to focus more of its efforts on increasing quality, awareness, and margin on each brand.
The year 2020 turned out to be good for Procter & Gamble which was able to increase organic sales by 6% but maybe more importantly expanded e-commerce sales by 40%.
Abbott Laboratories (ABT)
Market Cap: $196 Billion
Dividend Yield: 1.63%
Business Focus: Medical Devices and Health Care
Ever heard of Pedialyte? Abbott Laboratories is the company that makes it along with a whole host of other products. Some of the most innovative products coming out of Abbott include real-time glucose monitoring systems for diabetics, mobile technologies to monitor and treat heart rhythm problems, neuromodulation technologies to assist patients with chronic pain and movement disorders, and maybe most relevant to 2020 rapid tests for COVID 19.
While this company is old being founded in 1888, it should not be thought of as lacking innovation as many legacy companies do.
In addition to innovation, there’s another thing you can likely count on, your dividend. Abbott has paid an annual dividend for 97 consecutive years. That’s a feat not many companies can attest to mainly because many haven’t even been around 97 years. To top it off over the last 5 years Abbott has nearly doubled the return of the S&P 500.
Bank of America (BAC)
Market Cap: $350 Billion
Dividend Yield: 1.76%
Business Focus: Investment Banking and Financial Services
Have you looked at your bank account recently? If so, you know that they aren’t paying much in interest so why not just buy the bank? This may seem silly but the dividend yield from Bank of America, the nation’s largest retail bank by deposits, is much higher than what you would earn in interest from them.
They can afford to pay more in dividends because of their diversified business operations that range from retail banking to wealth management, to international and investment banking. Even in 2020 with the low interest and uncertain environment they were able to raise their annual dividend from $0.66/share to $0.72/share.
That said, it should come as no surprise that low-interest rates and the weird economic conditions of 2020 did reduce the company’s revenue by 13%.
McDonald’s (MCD)
Market Cap: $176 Billion
Dividend Yield: 2.18%
Business Focus: Fast Food
McDonald’s isn’t the king of fast food by random chance but rather by intensely focusing on staying culturally relevant and expanding their franchise footprint. Just listen to the music an average Burger King plays vs an average McDonald’s, case closed.
This is a good sign since companies who are aware of cultural trends are typically the ones leading the curve of innovation. Once again McDonald’s shows up rolling out several iterations of digital transactions for its customers that include purchasing food ahead of time or via delivery. In addition to this McDonald’s has plans to rethink drive-thru to include an express pick-up lane for digital orders.
In 2021 the company plans to open an additional 650 restaurants to the 39,198 it currently has in operation.
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