Blue-chip stocks are among the best stocks that dividend investors can buy.
We define blue chip stocks as those with a history of 100+ years of dividend payments to shareholders, along with a 3%+ current dividend yield.
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We have compiled a list of stocks that meet these two requirements. You can see the full list of blue chip stocks here.
In addition, Sure Dividend employs a ranking system, called the 8 Rules of Dividend Investing, to more clearly separate the best-in-class blue chips.
With that in mind, we have created a Top 10 list, for the best blue-chip stocks in the market today.
Several of the stocks on the list are Dividend Aristocrats, a group of 51 stocks in the S&P 500 Index, with 25+ years of consecutive dividend increases. You can see all 51 Dividend Aristocrats here.
Some are members of an even more exclusive group: The Dividend Kings, which have raised dividends for 50+ consecutive years. You can see all 19 Dividend Kings here.
The following Top 10 are ranked, in order from best to worst, according to the 8 Rules Rankings.
Blue-Chip Dividend Stock #1: Exxon Mobil (XOM)
It is no secret that oil and gas majors are struggling in the current environment, due to low commodity prices.
Exxon Mobil’s earnings fell by 51% in 2016, due to a $4 billion loss in its huge exploration and production segment.
Fortunately, Exxon Mobil is an integrated major, which means it also has a large downstream refining business and a chemicals business.
This balance gives Exxon Mobil shelter from the storms.
Refining and chemicals profits are not reliant on high oil and gas prices, and as a result hold up very well in times of low commodity prices.
For example, refining and chemicals profits came in at $4.2 billion and $4.6 billion in 2016, respectively. These two segments helped Exxon Mobil remained profitable last year, in a terrible year for the industry.
This relative stability is why Exxon Mobil earns its place on the Top 10 list. For proof of its consistency, take a look at Exxon Mobil’s industry-leading returns on capital.
Source: 2017 Analyst Meeting, page 4
Exxon Mobil maintains its high returns on capital, by consistently generating positive earnings from its downstream and chemicals businesses.
Another way is through disciplined cost controls. In 2016, Exxon Mobil cut capital expenditures by 38%.
Fortunately, conditions have improved significantly to start 2017.
Earnings more than doubled over the first half of the year, to $7.4 billion. Upstream losses narrowed to $201 million, compared with $1.3 billion in losses during the same six-month period the previous year.
The company benefited from higher oil and gas prices, as well as a 21% reduction in capital expenditures in that time.
Going forward, future growth will be due in large part to where commodity prices head next. But Exxon Mobil continues to invest in new projects, which will also boost growth.
Its impressive project lineup includes the Papua New Guinea liquefied natural gas project, which has capacity of nearly 8 million tons of LNG each year.
Ramping up new project will significantly boost Exxon Mobil’s production, which is expected to rise to as much as 4.4 million barrels per day, by the end of the decade.
In the meantime, investors receive a 3.8% current dividend yield, and more than 30 years of dividend growth each year.
Blue-Chip Dividend Stock #2: Target (TGT)
Target is a discount retail giant. It has more than 1,800 stores across the U.S., and generates nearly $70 billion in annual sales.
Target is also a Dividend Aristocrat. It has increased its dividend for 46 years in a row.
Target’s current dividend yield is 4.4%. The reason for Target’s unusually high dividend yield, is that its stock price has declined by 25% in the past one year.
Target, like most other brick-and-mortar retailers, faces fierce competition from online retailers, led by Amazon.com (AMZN).
The current environment is indeed difficult for Target. Sales declined 6% in 2016. Earnings-per-share declined 20% last year, and were lower in 2016 than five years prior.
Source: 2016 Annual Report
Target has performed poorly over the past five years. The consistent declines over that time, show the impact that e-commerce has had on physical retailers.
Making matters worse, Target expects earnings to decline again in 2017, as the company invests significant resources in its turnaround efforts. These efforts include store renovations, building new small-format stores, and lowering prices to match online competition.
Target expects adjusted earnings-per-share to decline by 20% for the fiscal year, at the midpoint of guidance.
However, there are reasons to be optimistic.
Target’s investments are necessary, to improve its existing stores and better compete on price with Amazon. The initiatives are already gaining traction.
Target’s sales and earnings-per-share came in better than analysts expected last quarter. Adjusted earnings-per-share of $1.21 were $0.30 above forecasts. Quarterly revenue beat expectations by $400 million, thanks to 22% growth in digital sales.
On July 13th, Target raised guidance for the second quarter. It is a good sign that Target expects comparable sales to increase this quarter.
With a price-to-earnings ratio of 12 and a 4.4% dividend yield, Target is a top blue chip for value and dividends.
Blue-Chip Dividend Stock #3: Macy’s (M)
Macy’s is struggling even more than Target. While online retailers like Amazon have had a significant effect on discount retailers, the impact on department stores has been even more severe.
Macy’s stock has lost one-third of its value since the beginning of 2017, because its earnings-per-share declined 38% for 2016.
But, like Target, Macy’s looks like a bargain.
Last year’s results were not nearly as bad as they seem. Macy’s incurred significant non-recurring charges, such as impairments and restructuring expenses. Excluding them, Macy’s had adjusted earnings-per-share of $3.11 for 2016.
Based on this, Macy’s stock trades for a price-to-earnings ratio of just 7.8, which is very low. Such a low price-to-earnings ratio signals that investors expect profits to drastically decline moving forward.
But investors may be focusing too much on the first quarter, which is typically inconsequential for a department store.
The third quarter and fourth quarter are far more important, because of back-to-school and holiday shopping, respectively.
Macy’s management expects adjusted diluted earnings per share of $2.90-$3.15 this year, meaning 2017 will be another highly profitable year for the company.
It is not out of the question that Macy’s could return to earnings growth in 2018. The company is closing stores, but it is also opening new stores for the concepts that are working.
For example, last quarter Macy’s opened 10 new Bluemercury beauty specialty stores, along with 11 new Macy’s Backstage stores. It also opened one new Bloomingdale’s store in Kuwait. These investments will pave the way for growth in beauty and off-price channels, which are attractive growth categories.
Macy’s has a market capitalization of