Blue Chip Dividend Stocks For Your Retirement Portfolio

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The world is experiencing several crises at once right now. There’s decades-high inflation that hurts the income and wealth of everyone in real terms, there’s a global energy shortage, and there’s the ongoing war between Russia and Ukraine.

In these uncertain times, investors may want to opt for proven companies that have established, diversified business models and that have shown they have what it takes to stomach a crisis.

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In this report, we will therefore highlight three Blue Chip stocks that have done well in the past, throughout all kinds of crises -- including the pandemic, the Great Recession, the bursting of the bubble, and so on. Their ability to pay growing dividends, no matter what, will allow investors to stomach the current harsh macro environment more easily.

  1. Kimberly-Clark

Kimberly-Clark Corporation (NYSE:KMB) is a consumer goods company that operates globally and that sells products such as paper towels, tissues, and diapers. Its brands include household names such as Kleenex, Huggies, and Depend. 

Demand for these products isn't dependent on the strength of the economy, or on commodity prices, which is why Kimberly-Clark is able to generate very reliable sales, no matter what the macro environment looks like.

The flip side of that is that KMB is not experiencing a lot of business growth, but via expansion in international markets, M&A, and buybacks, Kimberly-Clark has nevertheless managed to generate meaningful earnings-per-share growth in the past, although its earnings-per-share growth rate has not been overly high.

We believe that the company should be able to grow its profit by around 5% a year on a per-share basis going forward, which would be relatively comparable to its past growth.

At current prices, Kimberly-Clark offers a dividend yield of 4.1%, which is above the average yield the company has traded with over the last decade. Its yield is also way higher than the broad market's sub-2% dividend yield. Kimberly-Clark has managed to grow its dividend for 50 years in a row, making it a Dividend King and an ultra-reliable dividend growth stock.

Between its compelling dividend yield and some earnings and dividend growth, Kimberly-Clark has a good chance of delivering a high-single-digit annual total return, we believe, which is attractive when it can be generated from a non-cyclical, reliable company such as KMB.

  1. Illinois Tool Works

Illinois Tool Works Inc. (NYSE:ITW) is an industrial products company that has, despite the cyclicality of many other industrial companies, an excellent dividend growth track record. Illinois Tool Works managed to grow its dividend for 58 years in a row, making it a Dividend King as well.

Earnings-per-share have more than doubled over the last decade, although there were some minor ups and downs. In 2020, for example, profits were down versus 2019 due to the impact of the pandemic. But since the dividend was still easily covered, there was no meaningful dividend cut risk -- which also holds true for past crises, such as the Great Recession.

With ITW's shares having pulled back over the last year, Illinois Tool Works is now trading with a dividend yield of 2.8%. That's easily more than what one can get from the broad market, and it also compares favorably to the dividend yield the company itself has traded at in the past, as its dividend yield mostly was in the 2% range over the last decade.

Illinois Tool Works has increased its dividend by 12% a year over the last five years. While we believe that dividend growth will slow down somewhat going forward, even the expected mid-single-digit dividend growth rate is very solid when combined with a dividend yield of close to 3%, as this should allow for high-single-digit annual returns before accounting for valuation changes.

Illinois Tool Works never was an especially cheap company, likely due to its compelling long-term track record. Right now, shares trade at a small discount compared to how they were valued, on average, over the last five years. This could result in some multiple expansion tailwinds for its total returns over the coming years.

  1. National Fuel Gas

National Fuel Gas Company (NYSE:NFG) is a lesser-known diversified energy company that is not overly large, being valued at $6 billion today. Nevertheless, the company has a very convincing dividend growth track record, having raised its dividend for 52 years in a row, making it a Dividend King as well.

The company is active in exploration and production, pipeline and storage, energy marketing, and it has some utility operations as well.

Despite being an energy company, its diversification across different businesses allows it to be more resilient than pure oil and gas upstream companies, for example -- which is one of the reasons why National Fuel Gas has managed to grow its dividend so reliably for decades, despite the volatility in commodity markets.

Thanks to high natural gas prices, which can be explained by the ongoing global energy shortage and high exports to markets such as East Asia and Europe, National Fuel Gas is very profitable in the current environment.

That's why earnings-per-share are forecasted to grow by more than 40% this year, to more than $6, versus $4.30 in 2021. Over the prior decade, National Fuel Gas has grown its earnings-per-share by around 50%, although there were some ups and downs over the years.

But thanks to a low dividend payout ratio -- just 31% based on current estimates for this year -- the company was able to maintain and grow its dividend very reliably, even though there were some years when profits had pulled back versus the previous year.

Based on current prices, National Fuel Gas offers a dividend yield of a little more than 3% today, which is roughly twice as much as what one can get from the broad market.

Combined with a historic dividend growth rate in the mid-single-digits, high-single-digit annual returns seem very achievable in the long run for this small-sized Dividend King.

In the near term, total returns could be higher, however. Based on current estimates, National Fuel Gas is trading at a very undemanding earnings multiple of just 10.

Since NFG used to trade at a mid-teens earnings multiple, on average, in the past, there is considerable upside potential for its shares which could lead to additional share price gains in the foreseeable future.