- These blue-chip stocks with dividends pay investors to wait for a rally by the stock market and tend to be quite resilient.
- IBM (IBM): Its business is solid and it has been reporting strong results.
- The TJX Companies (TJX): This retailer is benefiting from high inflation and its adept management of supply chains.
- NXP Semiconductors (NXPI): It reported strong Q1 results and is getting a lift from powerful demand for automotive chips.
- Lumen Technologies (LUMN): This networking and cloud company is a solid blue-chip tech name that is well-equipped to survive the turbulence of tech stocks.
- McDonald’s (MCD): It’s not just a reliable company, but it boasts a 46-year history of dividend increases.
- Merck (MRK): It will continue to benefit from strong sales of its anti-cancer drug, Keytruda, for some time.
- Citi (C): This stock should rally as investors become more upbeat about the economy.
Given the current volatility of the stock market, blue-chip stocks with dividends have two important advantages for investors. As a result, it’s a good time for long-term investors to buy such stocks.
First, due to the market’s turbulence, much of the Street is looking to own shares of solidly profitable companies with great balance sheets. In light of their “blue-chip status,” these firms tend to generate strong profits, while their ability to pay dividends suggests that their balance sheets are in decent shape.
Secondly, stocks with dividends famously “pay investors to wait” until the overall stock market turns around. I expect the market to make a big, bullish comeback within a few weeks, while others are much more bearish. Whoever is right, dividends will allow investors to book some revenue while they’re waiting for equities to rebound.
And for conservative investors who are worried that a recession is just around the corner, owning blue-chip stocks with dividends will enable them to sleep well at night, since these companies rarely go bankrupt.
| IBM | IBM | $131.17 |
| TJX | The TJX Companies | $60.31 |
| NXPI | NXP Semiconductors | $180.69 |
| LUMN | Lumen Technologies | $11.45 |
| MCD | McDonald’s | $238 |
| MRK | Merck | $93.83 |
| C | Citi | $52.77 |
IBM (IBM)
Dividend Yield: 5.1%
At the end of 2021, I wrote a column entitled, “IBM Stock Will Be a Good Fit for the 2022 Macro Environment.” I explained that “in 2022 when many investors are likely to be much less enamored with unprofitable, high-risk stocks and looking for strong, steady growers in the tech sector, Big Blue’s shares are likely to outperform the Nasdaq.”
That theory has indeed played out, as IBM (NYSE:IBM) stock has lost just 2% this year, versus a 27% swoon for the Nasdaq. And after adding IBM’s dividends to the total, the shares’ total return is only down a percentage point or two. Considering how badly tech stocks have performed in 2022, that’s a pretty good performance.
IBM’s last two quarterly earnings reports have provided plenty of evidence that the company is indeed one of the ” strong, steady growers” that investors favor in the current environment.
Specifically, in the first quarter the company’s revenue jumped 8% year-over-year, and its earnings per share, excluding certain items, surged 25% YOY to $1.40. Similarly, for Q4, the company reported EPS of $3.35, excluding certain items, versus analysts’ average outlook of $3.29, while its sales came in at $16.7 billion, compared with analysts’ mean estimate of $16.1 billion.
IBM stock has a robust dividend yield of 5.1%, while its forward price-earnings ratio is only 13.
The TJX Companies (TJX)
Dividend Yield: 2%
The next of our blue-chip stocks with dividends, discount retailer The TJX Companies (NYSE:TJX), is clearly benefiting from consumers searching for cheaper prices amid high inflation. Moreover, it’s definitely navigating the current supply-chain environment much better than its larger competitors, Walmart (NYSE:WMT) and Target (NYSE:TGT).
As a result, the company’s pretax margin actually rose to 9.4% last quarter, up from 7.2% during the same period a year earlier. Additionally, its Q1 EPS came in at 68 cents, well above analysts’ average outlook of 60 cents.
Despite consumers’ shift to services from goods, TJX expects its U.S. comparable store sales to climb 1%-2%. Meanwhile, the company is predicting that it will repurchase a hefty $2.25 billion to $2.5 billion of its shares this fiscal year.
As a bonus, TJX has a 2% dividend yield. Finally, its forward price-earnings ratio is a reasonable 19.2.
NXP Semiconductors (NXPI)
Dividend Yield: 1.9%
In early May, Goldman Sachs (NYSE:GS) included NXP Semiconductors (NASDAQ:NXPI) on its list of “high dividend growth” stocks. According to the firm, these names have “above-average dividend yields, high projected [dividend per share] growth and moderate payout ratios.”
On May 2, NXP reported Q1 EPS of $2.48, versus analysts’ average estimate of $2.31. And the company’s sales jumped 22% YOY to an all-time high of $3.14 billion, versus the mean estimate of $2.74 billion.
“The strong growth we have anticipated for 2022 is materializing. We continue to see robust customer demand,” NXP CEO Kurt Sievers said in a statement.
In Q1, the company’s revenue from automotive chips jumped 27% YOY to $1.23 billion. As the chip shortage eases, enabling more vehicles to be sold, and vehicles continue to utilize many more chips on average, the company’s automotive business should continue to shine.
The yield of NXPI stock is 1.9%, while its forward P/E ratio is a quite low 13.1.
Lumen Technologies (LUMN)
Dividend Yield: 9%
Somewhat like IBM, Lumen Technologies (NYSE:LUMN) is a solid, rock-like, blue-chip tech name that is well-equipped to survive the turbulence in the tech sector.
Indeed, in an April 4 column on LUMN stock, I contended that the shares were “trading at a very low valuation and [had] an extremely high dividend yield, as well as an adequate balance sheet. Moreover, the company appears to have solid, current businesses and decent growth opportunities.”
And like IBM, the shares have held up very well during the “tech wreck.” Indeed, despite the recent cratering of the Nasdaq, the shares’ total return, factoring in half of a quarterly dividend yield, is slightly positive.
On May 4, Lumen reported that its net income had surged to nearly $600 million in Q1, way above the $475 million of net income that it generated in Q1 of 2021. Impressively, the company’s EPS came in at 63 cents, versus analysts’ average outlook of 45 cents.
“We are excited by significant recent Enterprise wins, and our Quantum Fiber build is accelerating, both of which provide us confidence as we execute on our plans to drive toward revenue growth,” Lumen CEO Jeff Storey said in a statement.
The shares have a hefty dividend yield of 9% and are trading at a miniscule forward P/E ratio of 6.8.
Like NXP, Lumen was included on the list of Goldman’s “High Dividend Growth” stocks.
McDonald’s (MCD)
Dividend Yield: 2.4%
McDonald’s (NYSE:MCD) stock is a very reliable dividend payer, as the shares’ dividend has continuously increased for 46 years.
As a restaurant owner and franchiser, McDonald’s will be a beneficiary of the Great Reopening as many consumers, from working-class families to college students to partiers in their 20s, resume eating at restaurants.
Whether you’re bullish or bearish on the economy, MCD stock is a good option. That’s because in an economic downturn, struggling middle-class families will eat at McDonalds’ restaurants more often than more expensive options.
The company reported stronger-than-expected Q1 results, and research firm Cowen recently identified MCD stock as one of the top five restaurant names.
The shares have a dividend yield of 2.4% and a reasonable forward P/E ratio of 23.4.
Merck (MRK)
Dividend Yield: 3%
Merck’s (NYSE:MRK) Keytruda anti-cancer drug has become the standard of care for patients with non-mall cell lung cancer and has been approved to treat many other types of cancers including bladder cancer, some breast cancers, and skin cancer.
The drug was number four on the list of highest pharmaceutical revenue generators in 2021 and is expected to continue to generate impressive sales for the next several years. The sales of Merck’s HPV vaccine, Gardasil, jumped 40% last year, helped by reduced fears of the coronavirus. That trend should continue going forward, as the company says that the shot’s sales could double by 2030.
In 2022, analysts, on average, expect Merck’s EPS to jump to $7.35, versus $6.02 in 2021. MRK stock has a 3% dividend yield and a forward P/E ratio of just 12.6, making it a prime pick among blue-chip stocks with dividends.
Citi (C)
Dividend Yield: 4.1%
On to the last of our blue-chip stocks with dividends. Mounting worries about a looming recession have kept bank stocks, including Citi (NYSE:C) stock, down in recent weeks and months.
But everyone agrees that the balance sheets of both consumers and businesses are generally strong, while the labor market is extremely tight. The latter situation, in particular, should keep consumers relatively confident and spending prolifically, despite inflation.
Meanwhile, many experts believe that inflation has peaked. Moreover, based on the large amount of time that the Fed waited before starting to raise interest rates, I don’t think that the central bank is as intolerant of inflation as many on the Street think, and I don’t expect the central bank to fight inflation as vigorously as many believe.
Importantly, Warren Buffett appears to also be optimistic about the U.S. economy in general and C stock in particular, as he purchased a 2.1% stake in Citi in Q1.
Citi has an impressive dividend yield of 4% and a tiny forward price-earnings ratio of just 7.3.
On the date of publication, Larry Ramer did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.