Many people have some extra cash this time of year. It might be a bonus from your employer or a tax refund. Whatever the case, you should consider investing that money in a way that benefits you, like the stock market. Since you're reading this, there's a good chance you already have a stock portfolio and want to add to it.
I have scanned the market to find three undervalued blue chip stocks that you can buy for $5,000 or less and hold forever without losing sleep at night. There aren't many stocks you can do that with, so you'll want to see this.
1. How does a 9% dividend yield sound?
NYSE: MO
Key Data Points
Altria Group (MO 1.19%) doesn't get much hype because of its controversial business model. The company sells Marlboro cigarettes and other nicotine products throughout the United States. It's not for everyone, but the stock is a dividend beast that can rack up some major dividend income for your portfolio. The stock yields an impressive 9.3% at its current share price, backed by a manageable 74% dividend payout ratio.
Smoking rates in America have indeed plummeted over time, but population growth and pricing power have enabled Altria to continue growing its cash flow. Altria gets about 85% to 90% of its profits from smokeable products, like cigarettes and cigars, but the future lies in smokeless products, on which Altria is focusing.
Today, the stock trades at a forward price-to-earnings (P/E) of 8 times its estimated 2024 earnings. For reference, the broader stock market trades at a P/E over 20. In other words, the market has left Altria for dead. But this company is very much alive. Management backed up its belief in Altria's value by selling a piece of its (formerly 10%) stake in Anheuser-Busch InBev to increase its share repurchase program. Those looking for fat dividend checks should follow management's lead and scoop up shares.
2. The ultimate buy-and-hold stock is on sale
NYSE: JNJ
Key Data Points
Holding stocks forever is about avoiding stress. Getting that kind of slack in an investment portfolio takes the utmost confidence in a business. Healthcare conglomerate Johnson & Johnson (JNJ 0.15%) fits the bill. For starters, healthcare is a crucial industry that will never disappear, an evergreen market. Johnson & Johnson develops and sells pharmaceutical products and medical devices across various end markets.
Financially, it doesn't get any better than Johnson & Johnson. Where to start? The company has paid and raised its dividend for 62 consecutive years. Think back through all the ups and downs the world has seen over the past six decades... it doesn't matter: Johnson & Johnson persists. Its stellar balance sheet is a big reason why. The company has a coveted AAA credit rating, one of just two companies in the world with such a rating, even higher than the U.S. government's. That says a lot.
Johnson & Johnson isn't a hyper-growth stock. It's the tortoise, not the hare. Analysts believe earnings will grow by mid-single-digits annually over the next three to five years. However, at a forward P/E of under 14, the stock seems too cheap for the quality it represents.
3. Sign up for monthly dividends
NYSE: O
Key Data Points
Land is humankind's oldest asset, and Realty Income (O +0.70%) is a great way to benefit from owning real estate without having to shell out millions of dollars to own buildings. Realty Income is a real estate investment trust (REIT), a unique business entity that leases real estate it owns and pays most of its taxable income to shareholders as dividends. The company is also known for paying a monthly dividend.
Realty Income has proven over the years that investors can trust the checks to keep coming. Realty Income focuses on single-tenant retail buildings. It targets recession-resistant tenants like grocery and dollar stores, movie theaters, and gyms, all businesses that do fairly well regardless of what the economy is doing. Financially, Realty Income is rock-solid. The company has paid and raised its dividend for 31 consecutive years and sports a solid 71% payout ratio.
High interest rates have hammered the stock over the past couple of years. REITs borrow a lot to fund growth because they pay their income to investors. Higher rates can squeeze profit margins and make debt more expensive, potentially stunting growth. But this is a blue chip real estate stock trading at just 12 times its funds from operations (earnings for REITs). Interest rates fluctuate over time, so buy Realty Income while it's down to hold it forever.
