Two investing truths have proved timeless:
- Investing in the biggest, strongest companies -- blue chip stocks -- is a great way to earn solid returns, with lower risk of losses.
- The best stocks also have a great track record of market-beating total returns for investors.
Investors looking to balance lower risk of losses and steady, dependable returns may wish to combine dividends and blue chip stocks by owning the best blue chip dividend stocks. Let's take a closer look at the stocks that offer the best of both worlds, meeting the blue chip standard as a dominant, stalwart company and paying a strong dividend to deliver the best returns.
Blue chip stock defined
In the most focused sense, a blue chip stock is one that's a member of the Dow Jones Industrial Average. This index, made up of 30 of the biggest, strongest U.S. companies, is often referred to as the blue chip index. However, a better definition of a blue chip stock is "a well-known, high-quality company that is a leader in its industry."
For instance, Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B) has a market cap well over $500 billion and a long track record of profit growth and investor returns. It's an easy argument that this is an elite, blue chip company, despite the fact that it's not in the Dow. One could make the same argument for Amazon (NASDAQ:AMZN), Facebook (NASDAQ:FB), and a goodly number of other great, dominant companies that aren't in an index that holds only 30 stocks.
What about blue chip stocks and dividends?
Using the broader measure described above, not every blue chip stock pays a dividend. Younger ones like Amazon and Facebook still have plenty of great opportunities to continue deploying profits back into growing the business. Others, like Berkshire, have proven track records of earning wonderful returns reinvesting their company's profits.
But by and large, the best blue chip stocks are the ones that have also made it a point to return some of their profits to investors regularly in dividends. Some have been able to increase their dividends consistently for years -- even decades -- and steadily return more and more of their profits. Dividend Aristocrats, S&P 500 Index members with at least 25 consecutive years of annual dividend growth, and Dividend Kings, companies with a half-century streak or more, can offer even more appeal for investors looking for a steady, strong investment.
Whether a blue chip stock has that kind of dividend growth record or not, the combination of blue chip status and a nice dividend can be very rewarding for investors. Let's take a closer look at some of the blue chip dividend stocks that have rewarded investors well in 2020.
Best blue chip dividend stocks of 2020
|Company Name||Market Cap||Dividend Yield||2020 Total Returns|
|Apple (NASDAQ:AAPL)||$1.98 trillion||0.7%||60.3%|
|Corning (NYSE:GLW)||$27 billion||2.4%||23.3%|
|Nike (NYSE:NKE)||$204 billion||0.8%||28.7%|
|NextEra Energy (NYSE:NEE)||$148 billion||1.8%||24.9%|
|Mastercard (NYSE:MA)||$331 billion||0.49%||10.4%|
Apple investors have enjoyed immense returns over the past two decades, riding the company's rise to become the biggest and most profitable company in America. The foundation of Apple's success is the iPhone, which has enormous user loyalty and generates more than half of Apple's profits. Moreover, much of the company's growth in services revenue and profits is derived from its massive iPhone user base, as customers use their smartphones to engage in myriad paid services, including music and movie streaming and access to games, storage, and media content from thousands of third-party publishers that rely on the App Store to reach their customers.
And Apple is in an enviable position going forward, too. The iPhone 12 launch corresponds with the deployment of 5G in many markets. A possible "supercycle" of customers upgrading to the first 5G iPhone is primed to keep the megaprofits coming in.
For investors, Apple's dividend is set to be a growing source of value. The yield may be low, but it consumes less than 20% of Apple's cash flows, and it has been raised every year since being instituted in 2013. Not only is continued dividend growth likely, it's as stable a source of cash as investors will find.
While you may be familiar with Corning because of its cookware (now made by another company under a licensing agreement), the company makes the vast majority of its money supplying glass and ceramic materials used in a wide range of industrial, consumer, and life science products. This includes the super-tough glass used for TVs, monitors, and mobile devices, optical communications cables, emissions controls equipment, and a litany of other specialty products that can handle extreme temperatures, harsh environments, and rough handling and still maintain their performance properties.
For more than a century, Corning has been the go-to expert in specialty glass and ceramic products, and investors have been greatly rewarded along the way. Over the past decade, the growth of touchscreen devices and ultra-thin TVs has required increasingly thinner and stronger glass, and growth in data use has required more and more fiber deployment. Corning's dedication to research and development has kept it ahead of its competitors and, since 2011, has kept cash flows coming in enough to grow the dividend 340% and deliver 125% in total returns.
And the importance of Corning's products isn't going to shrink. More screens -- tough ones that can hold up while delivering a crystal-clear experience -- are being deployed in more products with every passing year, more fiber is being deployed to handle the growing amount of data being generated and transmitted over the internet, and increased focus on environmental stewardship and increased spending for healthcare will buoy Corning's environmental technologies and life sciences segments, too.
At recent prices, Corning's near-2.5% dividend yield makes it a stalwart that stock investors shouldn't ignore.
One of the most powerful brands in the world, Nike has been a blue chip winner for investors over the past four decades. It already counts on non-U.S. sales for more than half of its revenues -- more than $37 billion over the past four quarters -- but the best could be ahead. The global middle class is growing by leaps and bounds, and Nike is the elite global brand in athletic footwear and apparel.
It's not just Nike's brand power -- and the pricing power that comes with it -- that makes Nike a true blue chip. The company's scale, specifically its distribution capabilities, is also proving valuable. In its first quarter of fiscal 2021 (the third calendar quarter of 2020), Nike reported digital sales increased 82%, helping boost the bottom line with lower operating expenses and driving direct Nike sales 12% higher. Remember, this was in the midst of the global coronavirus pandemic, and Nike managed to break even on total sales by leveraging its ability to sell directly to consumers.
Investors certainly see a bright future for the swoosh, with shares near all-time highs at this writing. But with an extra billion people set to joint the global middle class over the next decade, and a direct-to-consumer model giving Nike more control over access to those customers, it's easy to see why this blue chip dividend stock is built to deliver even better results in the future.
Utility companies are often the stodgiest of stodgy stocks. In most cases they have very limited ability to grow, they face a lot of regulatory requirements, and generally they serve to deliver steady dividend payments and maybe a tiny bit of growth with each passing year.
NextEra Energy isn't your typical utility stock. Net income has increased almost 70% over the past decade, while the dividend is up 180%, some of the strongest earnings and payout growth of any utility over the same period. As a result investors have enjoyed almost 644% in total returns.
How has NextEra outgrown so many of its utility peers? In part by being in the right place at the right time: Florida, where its regulated utility operations are located, is one of the fastest-growing states, both in population and in business development. But there's more to the story. NextEra is also a growing producer of energy -- much of it renewables -- that it sells to utilities in other markets. The company's focus on this source of future revenue continues to pay off and has helped make NextEra one of the largest producers of clean, renewable energy in the world. It's also been hugely profitable for the company and its investors.
Conversely, the dividend yield of 1.8% is near the bottom of the heap for large utilities. But that's a product of investors paying up for quality. A lot of future value is baked into recent share prices, but the steady demand for power that underpins its business, low interest rates, and future growth in demand for renewables all mean NextEra's premium valuation could remain the norm for some time.
Payment networks giant Mastercard gets ignored by many dividend investors for the simple reason that the dividend yield is so low; at recent prices, the 0.5% yield isn't likely to get anyone very excited. But to toss this dividend growth baby out with the low-yield bathwater could be a big, big mistake. That's because in less than 15 years as a public company, Mastercard has never yielded even as much as 1%, but it has delivered immense returns in part because of a remarkable record of dividend growth.
And no, it's not too late to buy shares of this blue chip in the digital payments space. Cash still dominates commerce globally, but the transition to electronic spending is a massive trend with Mastercard right in the middle. As one of the largest and most recognizable names in electronic payments around the world, Mastercard has massive network effects advantages; whether you're a buyer, a merchant, or a financial institution, you want to carry, accept, or issue Mastercard in order to have access to the millions and millions of buyers, merchants, and financial institutions that do the same.
Again, the future looks incredible. Mastercard has grown revenue an average of 15% annualized over the past four years and earnings per share almost 24% per year over the same period. With another billion people set to join the global consumer class over the next decade, Mastercard is one blue chip stock with plenty of growth left.