Investors should never associate the stock market with gambling. But over time, the phrase “blue chip” has been applied to high-quality stocks. While there is no exact definition for what constitutes blue-chip stocks, generally they are considered to be companies that lead their respective industries. Blue chips tend to be larger, well-established businesses with strong brands and durable competitive advantages.
Furthermore, blue-chip stocks are typically associated with dividends. As a result, investors interested in blue-chip stocks should find companies that pay dividends, and have maintained long histories of raising their dividends each year.
The following three stocks all pay dividends to shareholders, and have raised their dividends for more than 50 consecutive years. They should all be considered blue chips today, and in the years ahead.
Blue-Chip Stocks: Johnson & Johnson (JNJ)
Johnson & Johnson is a health care giant. It has a diverse business model with a leading presence in pharmaceuticals, medical devices and consumer products. The company has increased its dividend for more than 50 years in a row. Its long history of steady growth is due to the company’s leading market share. For example, J&J has 26 different brands with at least $1 billion in annual revenue, and nearly half of the 26 products generate at least $2 billion in revenue per year.
J&J’s most prominent pharmaceutical products include Stelara, Darzalex, Imbruvica and more. The company’s billion-dollar consumer brands include Listerine, Tylenol and Band-Aid.
Its diversified business model and top brands allowed J&J to continue raising its dividend each year, even during a recession. In fact, J&J grew its earnings-per-share each year from 2007 to 2009 during the Great Recession and ensuing financial crisis. Very few companies were able to increase their earnings-per-share consistently over the Great Recession.
Going forward, investors should expect continued growth, since consumers need their medications and health services, even when the economy enters a downturn. This basic reality has served the company well during the coronavirus pandemic to start 2020. In the most recent quarter, revenue of $21.8 billion increased 2% year-over-year, while adjusted earnings-per-share rose 4%. The company easily beat analyst estimates for both sales and EPS last quarter.
For the full year, J&J expects revenue in a range of $81.2 billion to $82 billion, and adjusted earnings-per-share in a range of $7.95 to $8.05. With an annual dividend payout of $4.04 per share, J&J’s dividend is easily covered. The stock has a solid 2.8% dividend yield right now.
Procter & Gamble (PG)
P&G is a consumer products manufacturer with a large portfolio of brands. The company generates almost $71 billion in annual sales. Its core brands include Gillette, Tide, Charmin, Crest, Pampers, Febreze, Head & Shoulders, Bounty and Oral-B.
Five years ago, P&G embarked upon a transformation of its business model, as the company sold brands that were no longer growing or deemed to be important parts of its future. For example, P&G sold Duracell to Warren Buffett’s Berkshire Hathaway (NYSE:BRK.A, BRK.B). It also sold a beauty products portfolio to Coty (NYSE:COTY).
P&G still has a large portfolio, only now it is more streamlined. This provided P&G with multiple benefits, including cost savings and higher profit margins. It was also able to use part of the proceeds of its divestments to pay down debt, repurchase stock and invest in new growth products.
These efforts paid off, as P&G now has the ability to focus on its growth plan. In the most recent quarter, net sales and organic sales increased 9%, due to 7% volume growth, as well as 1% growth in pricing and also product mix. The combination of sales growth, in addition to margin expansion, fueled 22% growth in core EPS for the quarter. For the full fiscal year, the company expects 4% to 5% organic sales growth, and 4% to 9% EPS growth.
This level of growth will be more than enough to allow P&G to continue increasing its dividend, as it has done for 64 consecutive years. The company has paid a dividend for 130 years since its incorporation in 1890. This kind of track record is very unique and demonstrates P&G’s blue-chip status. The stock has a current yield of 2.2%.
3M Company (MMM)
3M is an industrial manufacturer with a focus on safety and industrial products, transportation and electronics, health care and consumer products. The coronavirus pandemic dampened global sales of 3M’s products.
In the 2020 second quarter, organic growth fell more than 13% in the second quarter, a much steeper decline than analysts expected. Sales in North America fell 16%, while 3M also notched a double-digit decline in Europe, the Middle East and Africa.
On a positive note, 3M management noted trends improved as the quarter progressed. Sales in July rose 6% while sales in August increased 2%. Still, earnings-per-share are expected to decline in the high single-digits for 2020.
We believe the company will return to long-term growth. 3M has a very long history of sustained growth. Specifically, 3M’s competitive advantages include its global scale, and its focus on science and innovation.
3M spends nearly $2 billion a year on R&D. It has more than 118,000 patents and receives roughly 4,000 new patents each year. 3M has increased its dividend for 62 consecutive years, a track record few companies have matched. With a current dividend yield of 3.5%, 3M stock is an particularly attractive for income investors.
On the date of publication, Bob Ciura did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Bob Ciura has worked at Sure Dividend since 2016. He oversees all content for Sure Dividend and its partner sites. Prior to joining Sure Dividend, Bob was an independent equity analyst. His articles have been published on major financial websites such as The Motley Fool, Seeking Alpha, Business Insider and more. Bob received a Bachelor’s degree in Finance from DePaul University and an MBA with a concentration in Investments from the University of Notre Dame.
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