7 Blue-Chip Stocks to Buy Now for Growth and Dividends
Posted On August 9, 2022
Investors looking for blue-chip stocks to buy generally are looking for companies that are reliable, consistent, profitable and focused on shareholder returns. Blue-chip stocks are less volatile than more speculative securities.
They also are less than riskier stocks when markets correct as they have this year and are also quicker to recover when markets bottom and begin climbing again.
Another reason investors look for blue-chip stocks to buy is that shareholders also benefit from strong dividend payouts, as well as special dividends that are paid when times are good.
The bottom line is that looking for blue-chip stocks to buy and choosing the most appropriate once for your financial goals is an attractive option for investors who like to balance risk and reward.
Here are seven blue-chip stocks to buy now for both growth and dividend payments.
UnitedHealth Group (UNH)
Source: Ken Wolter / Shutterstock.com
UnitedHealth Group (NYSE:UNH) is the largest healthcare insurance company in the U.S., the seventh biggest company in the world by revenue and among the premier blue-chip stocks to buy.
The company’s market capitalization currently sits at more than $500 billion. The sheer size and scope of UnitedHealth Group would be reason enough to add the company’s stock to a portfolio.
However, the company has many other reasons to recommend it. UNH stock is up 7% this year, outperforming the major U.S. indices, which are in the red so far in 2022.
Additionally, UNH stock pays a dividend that yields 1.23%. While not huge, the quarterly dividend is decent and good for a payment of $1.65 per share every three months. Plus, UnitedHealth’s core insurance business is largely immune to economic cycles, and the stock tends to perform strongly in good times and bad.
For example, in the past 12 months, the company’s share price has risen 30% while the benchmark S&P 500 index has declined 7%. Over the last five years, UNH stock has gained 177% and it is up 930% over the past decade. This is one stock to hold for the long term.
Source: Helen89 / Shutterstock.com
Rival Home Depot (NYSE:HD) tends to get more attention, but investors shouldn’t sleep on home improvement retailer Lowe’s (NYSE:LOW).
The company performed well during the Covid-19 pandemic and has managed to maintain much of its momentum as the economy has reopened. Lowe’s was most recently in the news for offering its employees the option of a four-day work week, a move undertaken to retain staff in a tight labor market. Lowe’s remains the second biggest company in America’s home improvement industry, which is worth $900 billion a year.
Other reasons to like LOW stock include an affordable price-to-earnings (P/E) ratio of 16.23, and a dividend yield of 2.11%, which equals a quarterly payout of $1.05 per share. In fact, Lowe’s is a “dividend aristocrat,” having increased its quarterly payment to shareholders for more than 50 years.
In 2022, Lowe’s dividend payout ratio is expected to be 27% of its profits, giving the company more room to run when it comes to future dividend hikes. Year-to-date, Lowe’s stock is down 22% at just under $200 per share. However, the share price is up 6% over the past 12 months and has gained 158% in the last five years. Buy the dip!
Source: suriyachan / Shutterstock.com
Investors looking for a stock that provides a good hedge against inflation should consider PepsiCo (NASDAQ:PEP).
PepsiCo has pricing power, meaning it can raise prices in an inflationary environment without losing customers. Consumers tend to buy its products even during tough economic times.
Pepsi has an advantage over its archrival Coca-Cola (NYSE:KO) in that it sells more than just soft drinks and beverages. In addition to its signature soft drink and others such as Mountain Dew and 7-Up, PepsiCo also makes leading packaged foods ranging from Quaker Oats oatmeal to Lay’s potato chips and Rold Gold pretzels.
The packaged foods segment nicely complements the beverage unit. This helps to explain why PEP stock has outperformed KO stock over the past five years, rising 50% to $174.55 per share versus a 39% gain for Coca-Cola.
PepsiCo also pays a strong quarterly dividend that currently yields 2.64% or $1.15 per share. The company’s P/E ratio of 26 is right in line with its peers and a tick lower than Coke’s P/E ratio of 28. Over the last 10 years, PepsiCo stock has risen 142%.
Source: 8th.creator / Shutterstock.com
McDonald’s (NYSE:MCD) is the biggest fast food company in the world with annual revenues of nearly $25 billion.
So far this year, MCD stock is down only 3% but is up 11% over the past year, and up 65% in the last five years. At its current price, McDonald’s stock is trading below analyst expectations. Among the 28 who cover the company, the median price target on McDonald’s stock is currently $285 a share.
MCD stock also pays a healthy quarterly dividend that yields $1.38 per share, and the company has a market capitalization approaching $200 billion. Sky-high inflation and rising interest rates do not seem to have affected McDonald’s sales or profits.
The company recently reported second-quarter results that showed its global same-store sales rose 9.7% in the April through June period, while its earnings per share came in at $2.55 compared to the $2.47 that was expected on Wall Street.
McDonald’s attributed the strong Q2 results to its ability to raise prices, and also to its popular value menu where items such as hamburgers are offered at discounts.
Source: NYCStock / Shutterstock.com
Microsoft (NASDAQ:MSFT) stock has an enviable track record of delivering gains to shareholders.
While the company’s share price is down around 15% this year, it has performed better than the technology-laden Nasdaq index which is down on the year and in bear market territory.
Many technology stocks are down 70% or more since the start of the year, but as a mature and established technology concern, Microsoft is built to weather any storm.
Over the past 12 months, MSFT stock is essentially flat, though it has gained 290% in the past five years and risen 840% over the last decade.
Its P/E ratio of 29 looks fairly valued and cheap compared to many other leading technology names. Plus, Microsoft pays a quarterly dividend that yields 0.88%, or $0.62 a share.
While the dividend is not great, it is better than nothing and higher than the dividends many of its peers offer. Consider that Google parent company Alphabet (NASDAQ:GOOGL), e-commerce giant Amazon (NASDAQ:AMZN) and Facebook parent Meta Platforms (NASDAQ:META) do not pay dividends. Microsoft looks pretty good by comparison.
Source: Antonio Gravante / Shutterstock.com
Shipping and logistics giant Federal Express (NYSE:FDX) is prioritizing its dividend. The company just underwent its first-ever CEO transition when founder Fred Smith stepped down and was replaced by Raj Subramaniam.
The first order of business undertaken by Subramaniam when he assumed the chief executive position in June was to boost the quarterly dividend by 53%. The company’s dividend now yields 1.96%, which is good for a quarterly payout of $1.15 a share. Throw in a P/E ratio of 16 and FDX stock looks both affordable and rewarding.
As the new CEO, Subramaniam also announced that FedEx is adding “total shareholder return” as a performance metric to its executive compensation program, letting analysts and investors know that the company is focusing on its stock. This is welcome news to current shareholders.
While FDX stock has gained 120% since the pandemic hit in March 2020, the stock is down 44% over the last 12 months, and 30% this year. However, the share price looks undervalued at its current level.
Among 25 analysts who cover FedEx, the median price target on the stock is $291, implying serious upside.
Source: Manuel Esteban / Shutterstock.com
Pharmaceutical company Pfizer (NYSE:PFE) was a solid blue-chip stock before the Covid-19 pandemic, owning a stable of blockbuster medications.
However, now that Pfizer is also producing leading medications to treat Covid-19, investors have no reason to ignore this stock. By mid-April of this year, Pfizer had already sold $32 billion of its Covid-19 vaccine, and another $22 billion of its Covid-19 pill called Paxlovid. The company forecasts that its annual revenue could surpass $100 billion for the first time ever this year.
Equally impressive is Pfizer’s dividend. The company currently pays a quarterly dividend that yields 3.25%, the highest level among stocks on this list and one of the highest dividends paid among companies listed on the S&P 500.
The dividend equates to a payout every three months of $0.40 per share. If that weren’t enough, Pfizer stock currently looks seriously undervalued with a P/E ratio of only 9.64.
Given its market cap of more than $275 billion, its strong earnings, and the massive sales of its Covid-19 medications, one would think the stock would be higher. However, investors with a long-term time horizon should take advantage and buy PFE stock while it’s on sale.
On the date of publication, Joel Baglole held long positions in MSFT and GOOGL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.