Blue-chip stocks are large, established and well-regarded companies. Often a household name, blue-chip companies tend to be financially sound and have reliable earnings. They also tend to pay dividends to their investors. Blue-chip stocks make for safe and sound investments during times of market turmoil like we are experiencing this year.
Institutional and retail investors often view blue-chip stocks as safe havens during periods of uncertainty. Retirees rely on the dividends from blue-chip stocks to provide them with a consistent income stream.
Here are the top seven blue-chip stocks that you can safely put your money into for the rest of 2020.
- Coca-Cola (NYSE:KO)
- Johnson & Johnson (NYSE:JNJ)
- General Motors (NYSE:GM)
- Walt Disney (NYSE:DIS)
- Berkshire Hathaway (NYSE:BRK.B)
- Walmart (NYSE:WMT)
- Bank of America (NYSE:BAC)
Top Blue-Chip Stocks: Coca-Cola (KO)
It’s not flashy, exciting or new. There are no big price swings and few breaking news alerts. Nevertheless, Coca-Cola has been a steady and consistent investment since the company went public in 1919. The purchase of one share of KO stock for $40 when the company held its initial public offering (IPO) over 100 years ago, would be worth more than $10 million today, including reinvested dividends.
The sweetened beverage known as Coca-Cola may be boring, but it is a reliable blue-chip stock that provides consistent returns to investors. One of Coca-Cola’s main attractions is its dividend. In February of this year, the company announced its 58th consecutive annual dividend increase, raising the quarterly payment 2.5%, from 40 cents to 41 cents per share, paid on a quarterly basis.
The company stated during its second quarter earnings that the worst of the global pandemic is now behind it as sales pick-up with the reopening of bars, restaurants, movie theaters, and live sporting events.
While KO stock is down about 13% year-to-date at just under $48 a share, it should rebound through the second half of this year as the economy improves and re-openings gain steam. Investors should view Coca-Cola’s current stock price as a chance to purchase a great American brand that provides one of the best dividends available.
Johnson & Johnson (JNJ)
Speaking of great American brands, how about Johnson & Johnson? The medical, pharmaceutical, and packaged goods company makes some of the most iconic brands in the world, including Band-Aid, Tylenol, Neutrogena, and Johnson’s Baby Lotion. The company’s products, whether they be Reactine for seasonal allergies or Pepcid for heartburn relief, largely make Johnson & Johnson a recession-proof company. Indeed, JNJ has survived every major economic and political crisis since it was founded in 1886, including two World Wars.
While the company hasn’t been immune to the Covid-19 pandemic, its second quarter downturn was not as bad as management expected. The company has been one of the few to raise its guidance for the remainder of 2020.
Johnson & Johnson’s sales fell 10.8% to $18.3 billion in the second quarter, and earnings were $1.36 per share, down 34.6% year-over-year. Still, the company forecasts 2020 earnings per share between $7.75 and $7.95 a share, higher than the $7.50 to $7.90 range predicted in April at the height of the pandemic.
In terms of its dividend, Johnson & Johnson pays an annual dividend of $4.04 per share, equal to a dividend yield of 2.74%. The company has grown its dividend for the last 24 consecutive years and is increasing its dividend by an average of 19.05% each year. Johnson & Johnson pays out 46.54% of its earnings as a dividend to shareholders.
If all this isn’t enough to peak the interest of investors, consider that Johnson & Johnson is a leading contender to develop a Covid-19 vaccine. It recently received $1 billion from the U.S. government to supply 100 million doses of its vaccine candidate Ad26.COV2.S at a price of $10 per dose.
General Motors (GM)
The largest U.S. vehicle manufacturer remains a solid investment even as the pandemic has slowed sales around the world. GM reported a better-than-expected second quarter loss of $800 million on revenues of $16.8 billion.
Not only was GM’s second quarter loss better than analysts had expected, it wasn’t really that bad at all when you consider that the company’s North American production facilities were closed for eight out of the 13 weeks in the quarter. Despite the ongoing difficulties caused by the pandemic, GM is plowing ahead with its five-year $20 billion investment in electric and self-driving vehicles.
Like other blue-chip stocks on this list, GM stock should be viewed as a bargain right now given that it is down about 20% year-to-date at $26.63 a share. With dealerships re-opening, production in full swing, and innovative new models coming to market, GM stock is sure to rise over the next year. The company also pays an annual dividend at a yield of 5.23%. This is a stock investors can feel good about adding to their portfolio — especially at its current undervalued price.
Walt Disney (DIS)
Shares of the world’s largest entertainment company have been on a run ever since third quarter results revealed 100 million subscribers to its streaming services (Disney+, Hulu and ESPN+). While Disney’s theme parks around the world continue to struggle, the company is diverse enough that it can generate revenue from multiple sources. As a result, the Mouse House actually reported a quarterly profit of 8 cents a share rather than the loss of 64 cents per share that had been anticipated by analysts.
With popular names that include everything from Star Wars and Marvel to Pixar and National Geographic, Disney has brand equity to spare. Investors looking for a rock solid entertainment company to invest in can’t do better than DIS stock.
The company’s share price has risen nearly 30% in the past week, closing above $130 per share. While Disney suspended its semi-annual dividend for the first half of the fiscal year (a move that saves the company $1.6 billion), the company could restore the dividend in the year’s second half as its financial position improves.
Berkshire Hathaway (BRK.B)
Not only is holding company Berkshire Hathaway a blue-chip stock, but its founder Warren Buffett is the quintessential blue-chip investor. In fact, Berkshire Hathaway owns every stock on this list except Walmart and Walt Disney in its expansive investment portfolio. The company, which Mr. Buffett continues to run as he turns age 90, favors investments in trusted blue-chip stocks over flashy new stocks that are volatile and risky.
Berkshire Hathaway holds shares in companies such as American Express (NYSE:AXP) and Costco (NASDAQ:COST). The few technology companies held by Berkshire are relegated to the likes of Apple (NASDAQ:APPL) and Amazon (NASDAQ:AMZN). This investment strategy has made Berkshire Hathaway a very stable and reliable company. Berkshire Hathaway also holds more than $150 billion of cash, which is comforting to many shareholders.
Berkshire Hathaway is so focused on its blue-chip investment strategy that BRK.B stock tends to get punished during times of market bubbles and volatility. This was the case during the dot.com bubble and again this year.
As the tech-heavy NASDAQ stock exchange reached record levels, BRK.B stock languished at around $190 per share. However, it now looks like the worst maybe over for the company’s stock. BRK.B stock has rallied more than 8% in the past week and is now firmly above $200 a share.
Sadly, Berkshire Hathaway does not pay a dividend as Mr. Buffett says he does not believe in them and would rather reinvest the money into the business. The irony being that most of the companies Mr. Buffett is invested in pay him a dividend.
Walmart (WMT)
Few retailers are as blue-chip as Walmart. A household name around the world, Walmart’s focus on keeping prices low and selling an ever expanding array of products has earned it a devoted customer base.
And Walmart has proven to be a great pandemic stock. Its stores remained opened during most of the Covid-19 lock down period and demand for its essential products remained steady. As a result, the company’s revenue actually grew 9% year-over-year to $135 billion in its fiscal first quarter ended May 1. Walmart’s e-commerce sales surged 74% during the period.
Perhaps unsurprisingly, WMT stock is actually up 9.5% year-to-date. Analysts expect the company to continue posting impressive results for the remainder of this year as the global economy slowly emerges from the pandemic.
Perhaps to punctuate its ongoing success, Walmart announced that it is actually raising its dividend for fiscal 2021 to $2.16 per share, up 2% from the $2.12 per share in the previous fiscal year. The fiscal 2021 dividend is being paid out in four quarterly installments of 54 cents a share. Investors who have held WMT stock throughout this year can feel reassured by the company’s performance.
Bank of America (BAC)
Perhaps there is no better vote of confidence in Bank of America than the fact that its stock is the only one that Warren Buffett has bought more of in recent months. His holding company, Berkshire Hathaway, bought $2.1 billion of BAC stock over 12 trading days in late July and early August. Berkshire now owns nearly 12% of the second-largest bank in the U.S.
While many analysts questioned the timing of the share purchase given that banks are at heightened risk of loan defaults right now, the Oracle of Omaha clearly felt that the blue-chip Bank of America is undervalued at its current share price of around $25. BAC stock is down precipitously from its 52-week high of $35.72 a share.
Apart from Mr. Buffett’s vote of confidence, Bank of America does have a lot to recommend it as a blue-chip company. In 2019, the bank produced a return on equity of 14.9%, and growing investments in technology and rigid expense management have improved its efficiency ratio.
Bank of America is also a dividend powerhouse — returning more than $95 billion to shareholders since 2013. Bank of America has grown its dividend by 50% over the past three years and the yield now stands at 2.7%. All of these reasons make Bank of America one of the safest and most reliable investments for the remainder of 2020 and beyond.
As of this writing, Joel Baglole did not owns shares of KO, DIS, BRK.B, and BAC.
