The stock market has taken investors on a wild ride so far this year. And although the broader indexes have recovered from their mid-June year-to-date lows, there are still many individual stocks that are down big from their highs.
If your portfolio is down and you are looking for well-rounded companies, you've come to the right place.
Honeywell International (HON 0.64%), Chevron (CVX -0.01%), and FedEx (FDX 1.14%) are three blue chip dividend stocks that can add stability to a diversified portfolio, provide a reliable passive income stream, and have exciting growth prospects. Here's what makes each industry-leading company a great buy now.
Honeywell has plenty of long-term growth potential
Lee Samaha (Honeywell International): This industrial giant is a well-run company whose growth potential will be realized in the coming years. Honeywell operates four segments: aerospace, Honeywell Building Technologies (HBT), performance materials and technologies (PMT), and safety and productivity solutions (SPS).
In aerospace, Honeywell will participate in the ongoing recovery in the commercial aerospace market. Meanwhile, HBT is exposed to some exciting themes in commercial buildings. First, there's the need to create healthy, clean buildings in the wake of the pandemic. Second, the creation of smart buildings will help owners manage and operate them better, not least for making sure they meet carbon emissions standards. In PMT, Honeywell invests heavily in sustainable technology solutions (renewable fuels, carbon capture, green hydrogen) that it believes will generate $700 million in revenue by 2024.
Finally, SPS has excellent long-term growth prospects in e-commerce warehouse automation and Internet of Things (IoT) technologies.
Honeywell also has a major stake in a leading quantum computing company, Quantinuum, and Honeywell Urban Aerial Mobility (UAM) and Unmanned Aerial Systems (UAS) provide systems for air taxis and delivery drones. Underlining all of this is Honeywell's ongoing investment in software and digital capability, Honeywell Forge.
It's an impressive array of technologies, and even though Honeywell's 2% dividend yield isn't anything to write home about now, the company has doubled its dividend payout over the last decade. Moreover, it has the growth potential to do so again in the coming decade.
Feeling blue about your portfolio? Add this noble blue chip dividend stock to energize things
Scott Levine (Chevron): Checking your holdings' performances and finding that they're largely in the red is enough to dishearten even the most experienced investor. Savvy investors know, however, that one of the most unproductive courses of action to take is blindly selling off stocks. Instead, fortifying your portfolio with reliable blue chip stocks -- especially dividend payers like Chevron and its forward-dividend yield of 3.5% -- is a wise move to make, better positioning your portfolio to prosper in the long run.
For 35 consecutive years, Chevron has returned capital to shareholders via the dividend, helping it to earn the noble rank of Dividend Aristocrat. Of course, this title alone doesn't guarantee that the company will continue to hike the dividend higher over the coming years, but it's certainly reassuring that management has steadfastly rewarded shareholders.
Another encouraging sign regarding the oil stock is that it's a key holding in the Berkshire Hathaway portfolio. The Oracle of Omaha first bought shares of Chevron in 2020, and Buffett's position in Chevron has grown to the point that it's one of Berkshire Hathaway's largest holdings.
Operating upstream, midstream, and downstream assets, Chevron is a well-diversified oil supermajor. It's the company's expanding production in the Permian, though, that suggests the company is well positioned to support a growing dividend. During a recent investor presentation, Chevron forecast its activities in the Permian will translate to $4 billion in free cash flow in 2026, assuming a Brent crude oil per barrel price of $60. Looking at where the company's headed over the next five years on a more general scale, investors will find additional reasons to believe dividend growth is in the future. With Brent crude oil priced at $60 per barrel, Chevron estimates it will see cash from operations per share rise at a compound annual growth rate of more than 10% from $12.20 in 2021 through 2026.
Delivering strong results and a growing dividend
Daniel Foelber (FedEx): FedEx, along with its peer United Parcel Service, has outperformed the market and the industrial sector over the last three years. A big part of that outperformance is strong results in an industry with multidecade growth prospects.
The package delivery industry is incredibly capital intensive and cyclical, which makes competition few and far between aside from FedEx, UPS, the United States Postal Service (USPS), Amazon, and then a few international players like DHL. A boom in e-commerce and business-to-consumer shipping helped FedEx during the height of the COVID-19 pandemic. Since then, a rebound in business-to-business volumes has boosted FedEx's operating margin close to its pre-pandemic level of roughly 7%. FedEx doesn't have as high of a margin as UPS, but that doesn't mean that it isn't a stock worth owning for long-term investors.
FedEx's competitive advantage is convenience. FedEx Express operates seven days a week and sports a fleet of 696 aircraft as of year-end fiscal 2022 (which is more than UPS's total fleet including leases and aircraft under order and option).
FedEx's base services, paired with its niche role in expedited shipping, provides differentiation from UPS and USPS. However, FedEx stock has underperformed UPS over the past few years, and for good reason, as FedEx faced steeper setbacks during the height of the U.S.-China trade war in 2018 and has had more trouble navigating supply chain challenges and the labor shortage.
In general, FedEx tends to be more cyclical than UPS because of its premium services, which can make its earnings more volatile. However, FedEx has done an exceptional job raising its dividend in recent years. In fact, its dividend has increased more than sevenfold over the last 10 years, is up 130% over the last five years, and is up over 50% in the last year. FedEx has a dividend yield over 2%, as well as a low valuation with a price-to-earnings ratio of 15.8.
Investors should keep in mind that FedEx is vulnerable to a global economic slowdown. But for investors who believe in the growth of package deliveries, an increasingly interconnected global supply chain, and the growth of e-commerce, FedEx is an emerging blue chip dividend stock worth considering now.