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Worried About Missing Your 2022 Financial Goals? Consider These Three Blue Chip Dividend Stocks

By Daniel Foelber, Scott Levine, and Lee Samaha – Jan 11, 2022 at 10:10AM

Key Points

  • A value opportunity is building in Magna International stock.
  • Linde provides critical materials to a wide swath of industries.
  • Caterpillar's business segments are all set up nicely for 2022.

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These businesses provide reliable income streams no matter what the economy is doing.

Just a little over a week into 2022, investors may be wondering if the red-hot bull market can continue amid potentially higher interest rates and an ongoing pandemic.

Blue chip dividend stocks have the ability to outperform the S&P 500 over time thanks to their ability to outlast downturns and pay dividends no matter the market cycle. Magna International (MGA 1.00%), Linde (LIN 0.68%), and Caterpillar (CAT 0.46%) are three industry-leading businesses that investors can count on to help them hit their financial goals. Here's what makes each a great buy now.

A person in personal protective equipment examines a microchip.

Image source: Getty Images.

The semiconductor shortage won't last forever

Lee Samaha (Magna International): It's been another difficult year for the automotive sector. If it wasn't the lingering impact of the COVID-19 pandemic impacting production facilities, it was the well-documented global semiconductor shortages scaling back production plans. As such, global light vehicle production in 2021 turned out to be less than most expected it would be -- rising just 1.2% over 2020 levels according to industry forecasters IHS Markit.

That's bad news for automakers, and it's also bad news for auto parts and original equipment manufacturers (OEMs) like Magna International.

With sales of around $36 billion in 2021 and a portfolio of products (body structures, power and vision, seating, complete vehicles), Magna is very much a blue chip play on the auto industry. So when the auto industry sneezes, Magna will catch a cold. Indeed, in the recent third quarter, management was forced to lower its assumptions for full-year global light vehicle production and its own sales from between $38 billion and $39.5 billion to a new range of $35.4 billion to $36.4 billion.

That said, if investors can look beyond the near-term issues, the stock looks very attractive. For example, IHS Markit predicts global light vehicle production will increase 9% year over year in 2022. Moreover, the semiconductor shortage won't last forever. Furthermore, Magna is a business that generated more than $2 billion in free cash flow (FCF) in the previous three years, and if it can get back to that figure over the next couple of years, it will trade on just 12 times FCF based on the current market cap. 

A noble blue chip stock can buttress your portfolio in the coming year 

Scott Levine (Linde): Investors reflecting on their holdings' 2021 performances are probably pretty happy. With the S&P 500 rising 28% last year, it's likely investors will find a lot of tickers in their portfolios that fared fairly well. Of course, there's no guarantee that the market's rise will continue; in fact, many pundits are predicting the market is poised for a steep correction in 2022. If you're also bearish on 2022 or if you're looking to shore up your portfolio with a stalwart blue chip stock, Linde deserves a close look.

Providing gases for industrial uses, Linde serves a variety of different businesses. The company generates steady revenue from end markets like healthcare, food and beverage, and semiconductor manufacturing. In addition, it's focused on growth opportunities like the hydrogen market. On the company's third-quarter earnings conference call, for example, Sanjiv Lamba, the company's chief operating officer, reported that Linde has 260 hydrogen-related projects in its pipeline, representing approximately $4 billion in potential investments. However, potential investors may want a more concrete indication of the company's prospects in the year ahead. To this end, it's worth noting that the company has $13.4 billion in backlog, which management says "includes contractually secured incremental growth with fixed payments."

Undoubtedly, any discussion detailing the merits of an investment in Linde must include management's steady commitment to rewarding shareholders. For nearly 30 years, Linde has consistently raised its payout to shareholders, earning it the title of Dividend Aristocrat. While the forward yield of 1.2% won't land the stock on a list of high-yield dividend stocks, it can help provide some stability to investors looking for conservative stocks to fortify their portfolios.

A reliable dividend supports this cyclical business

Daniel Foelber (Caterpillar): In just the first five trading days of 2022, share prices of Caterpillar rose over 8% -- a gain that many investors hope to make in the whole year. Caterpillar is known for its construction equipment, but its energy and transportation division is its largest segment. Caterpillar also has a sizable mining segment. All three industries are set up nicely to rocket higher in 2022 and beyond thanks to strong infrastructure spending, high oil and gas prices, and demand for raw materials.

Caterpillar is a cyclical business that has been on the brink of a multi-year up cycle for some time now. The U.S.-China trade war followed by the COVID-19 pandemic threw wrenches into what could have been a boom time for Caterpillar. A strong residential housing market paired with seven-year-high oil and gas prices should make 2021 a great year for Caterpillar once it reports its fourth-quarter and full-year earnings on Jan. 28. Investors should tune in to see if Caterpillar's financials lived up to expectations, as well as catch a glimpse of the company's guidance for 2022.

Caterpillar's results may ebb and flow, but the company has been able to consistently pay and raise its dividend for going on 28 years, making it a Dividend Aristocrat. Caterpillar's reliable dividend, which currently yields 2%, provides a nice income stream that investors can count on through good times and bad.

Equal parts of Magna, Linde, and Caterpillar give an investor exposure to several different industries and an annual dividend yield of 1.8%. 

Daniel Foelber has no position in any of the stocks mentioned. Lee Samaha has no position in any of the stocks mentioned. Scott Levine has no position in any of the stocks mentioned. The Motley Fool owns and recommends Linde plc. The Motley Fool recommends Magna Int'l. The Motley Fool has a disclosure policy.

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