Wed. Dec 8th, 2021

Updated on August 5th, 2021 by Bob Ciura

Spreadsheet data updated daily

In poker, the blue chips have the highest value. We don’t like the idea of using poker analogies for investing. Investing should be far removed from gambling. With that said, the term “blue chip stocks” has stuck for a select group of stocks….

So what are blue chip stocks?

Blue chip stocks are established, safe, dividend payers. They are often market leaders and tend to have a long history of paying rising dividends. Blue chip stocks tend to remain profitable even during recessions.

At Sure Dividend, we define blue chip stocks as companies that are members of 1 or more of the following 3 lists:

You can download the complete list of all 260+ blue chip stocks (plus important financial metrics such as dividend yield, P/E ratios, and payout ratios) by clicking below:

 

In addition to the Excel spreadsheet above, this article covers our top 7 best blue chip stock buys today as ranked using expected total returns from the Sure Analysis Research Database.

Our top 7 best blue chip stock list excludes MLPs and REITs. The table of contents below allows for easy navigation.

Table of Contents

The spreadsheet and table above give the full list of blue chips. They are a good place to get ideas for your next high quality dividend growth stock investment…

Our top 7 favorite blue chip stocks are analyzed in detail below.

The 7 Best Blue Chip Buys Today

The 7 best blue chip stocks as ranked by 5-year expected annual returns from The Sure Analysis Research Database (excluding REITs and MLPs) are analyzed in detail below. In this section, stocks were further screened for satisfactory Dividend Risk score of ‘C’ or better.

Blue Chip Stock #7: Perrigo Company plc (PRGO)

  • Dividend History: 19 years of consecutive increases
  • Dividend Yield: 2.0%

Perrigo’s history goes all the way back to 1887 when Luther Perrigo, the proprietor of a general store and appledrying business, had the idea to package and distribute patented medicines and household items for country stores. Today, Perrigo operates in the healthcare sector as a manufacturer of overthecounter consumer and pharmaceutical products.

On 3/1/2021, the company announced that it would sell its Generic Rx Pharmaceuticals business to Altaris Capital partners for $1.55 billion.

Perrigo also reported earnings results for the 2021 first quarter on May 11th. Net sales were $1.01 billion, a decrease of 6.8% year over year, due primarily to difficult comparisons as the year-ago quarter involved pandemic-related pantry loading. The 2021 first quarter also had a low incidence of cough/cold related illness versus the same quarter a year ago.

Source: Investor Presentation

Adjusted earningspershare declined 25% for the quarter, but most of the decline was due to the benefit of pantry stockpiling in the year-ago quarter.

The company has scaled back its pharmaceutical operations. Consumer health products now represent approximately 80% of total revenue. And, the company will spinoff its pharmaceutical segment to further focus on consumer products. Focusing on consumer products will add stability to Perrigo, but these products typically grow at a lower rate than pharmaceuticals. Overall, we expect 5% annual earnings growth through 2026.

Perrigo stock trades for a 2021 P/E ratio slightly below 11, compared with our fair value estimate of 15. Shareholder returns will be boosted by a rising valuation multiple, expected EPS growth of 5%, and the current dividend yield of 2%. Overall, total returns are expected to reach 13.1% per year over the next five years.

Blue Chip Stock #6: Bristol-Myers Squibb (BMY)

  • Dividend History: 11 years of consecutive increases
  • Dividend Yield: 2.9%

Bristol-Myers Squibb is a leading drug maker of cardiovascular and anti-cancer therapeutics, with annual revenues of about $42 billion.

The past year has seen the company transform itself, due to the $74 billion acquisition of Celgene, a peer pharmaceutical giant which derived almost two-thirds of its revenue from Revlimid, which treats multiple myeloma and other cancers.

The end result is that Bristol-Myers Squibb is now an industry giant, which continues to generate strong results even during the coronavirus pandemic.

Source: Investor Presentation

Revenue grew 15.5% to $11.7 billion, coming in $470 million better than expected. Adjusted earningspershare of $1.93 compared favorably to adjusted earningspershare of $1.63 in the prior year and was $0.03 above estimates. U.S. revenues improved 14% to $7.5 billion while international was up 18%. Currency exchange was an 8% tailwind to results.

For the quarter, Revlimid sales increased 11% to $3.2 billion due to recovery to preCOVID levels as well as longer treatment duration. Eliquis, which prevents blood clots, grew 29% to $2.8 billion due to ongoing strength in demand in both U.S. and international markets. Eliquis has become the top oral anticoagulant in several international countries since 2019 and had more than $9 billion in sales last year.

Opdivo, which treats cancers such as advanced renal carcinoma, returned to growth, with sales improving 16% to $1.9 billion due to new launches for use. Revenue for Orencia, which treats rheumatoid arthritis, grew 9% to $814 million. BristolMyers reaffirmed its guidance and expects adjusted earningspershare in a range of $7.35 to $7.55 for 2021. We expect 3% annual earnings growth over the next five years for BMY.

The company’s recently announced $2 billion addition to its share repurchase is another positive catalyst for earnings-per-share growth.

Based on expected EPS of $7.45, shares of BMY trade for a forward P/E ratio of 9.2. Our fair value P/E estimate is a P/E of 13-14, which is more in-line with the pharmaceutical peer group. Lastly, BMY has a 2.9% dividend yield, leading to total expected returns of 13.4% per year over the next five years.

Blue Chip Stock #5: AT&T Inc. (T)

  • Dividend History: 36 years of consecutive increases
  • Dividend Yield: 7.4%

AT&T is a telecommunications giant, as its core Communications segment provides mobile, broadband and video to 100 million U.S. consumers and 3 million businesses.

In the 2021 second quarter, AT&T generated $44.0 billion in revenue, up 7.6% from Q2 2020. Adjusted earnings-per-share (EPS) equaled $0.89 compared to $0.83 in the year ago quarter. AT&T ended the quarter with a net debt-to-EBITDA ratio of 3.15x.

Source: Investor Presentation

Reported net income equaled $7.5 billion or $1.04 per share. On an adjusted basis, earningspershare equaled $0.86 compared to $0.84 in the year-ago quarter. AT&T ended the quarter with a net debttoEBITDA ratio of 3.1x.

AT&T is undergoing massive changes as it seeks to unload its satellite TV and media assets. On February 25th, AT&T announced it will spin off multiple assets into a separate company called New DIRECTV that will own and operate the DirecTV satellite TV business, as well as AT&T TV and U-verse video. AT&T will own 70% of the company, and will sell 30% ownership to TPG for approximately nearly $8 billion, which will be used to pay down debt.

On May 17th, 2021 AT&T announced an agreement to combine WarnerMedia with Discovery, Inc. (DISCA) to create a new global entertainment company. AT&T will receive $43 billion in a combination of cash, securities and retention of debt. AT&T shareholders receive stock representing 71% of the new company, with Discovery shareholders owning 29%.

We believe these various deals with allow AT&T to simplify its operations, become more efficient, and return to its core focus on telecom services. Indeed, 5G is a major area of focus for AT&T. The company continues to expand 5G to more cities around the country. AT&T’s 5G service now covers more than 120 million people.

AT&T is optimistic about generating reasonable growth and the payout ratio had been falling, resulting in excess funds to divert toward paying down debt. AT&T also has a long history of increasing dividends each year (AT&T is currently a Dividend Aristocrat).

With a P/E below 10, AT&T is undervalued against our fair value estimate of 11. The combination of 3% expected EPS growth and the 7.4% dividend yield lead to total expected returns of 13.6% per year over the next five years.

Blue Chip Stock #4: Telephone & Data Systems (TDS)

  • Dividend History: 45 years of consecutive increases
  • Dividend Yield: 3.6%

Telephone & Data Systems is a telecommunications company that provides customers with cellular and landline services, wireless products, cable, broadband, and voice services across 24 U.S. states. The company’s Cellular Division accounts for more than 75% of total operating revenue.

TDS started in 1969 as a collection of 10 rural telephone companies. Today, the company has a market cap of $2.3 billion and generates more than $5 billion in annual revenues.

Source: Investor Presentation

Much of TDS’ future growth potential depends on U.S. Cellular, as TDS has an 82% stake in U.S. Cellular. While the company’s earnings trend has been volatile, book value per share (BVPS) grew by 2.0% per year over the last decade.

We expect $1.90 in EPS for 2021, to go along with ~$42.50 in book value per share. We expect 1.5% annual EPS growth and BVPS growth over the next five years. Earnings growth will be achieved through a mix of revenue growth and margin improvements.

Due to the volatility in the company’s earnings, we believe that the best way to assess the valuation of TDS is by looking at its price-to-book (P/B) ratio. TDS is currently trading at a price-to-book ratio of 0.45, which is lower than its 10-year average of 0.70.

If the stock reverts to its average valuation level over the next five years, it will see a 9.2% annualized gain. Adding expected EPS growth of 1.5%, and the current dividend yield of 3.6%, total annual returns are expected to reach 13.8% through 2026.

Blue Chip Stock #3: Comcast Corporation (CMCSA)

  • Dividend History: 13 years of consecutive increases
  • Dividend Yield: 1.7%

Comcast Corporation is a media, communications, and entertainment conglomerate. Its operating segments include Cable Communications, NBCUniversal, Theme Parks, Broadcast TV, and Sky. Collectively, through these segments, Comcast offers high-speed Internet, video, voice, wireless, cable networks, filmed TV, and other services. Comcast generates over $100 billion in annual revenue.

In the 2021 second quarter, Comcast reported 20% revenue growth and 22% adjusted EPS growth.

Source: Investor Presentation

The company’s Cable Communications net additions were 294,000 which was the best second quarter on record, while total broadband net additions of 354,000 were also the best second quarter result on record.

NBCUniversal adjusted EBITDA rose 12.5% to $1.6 billion. The theme parks segment delivered its first profitable quarter since the first quarter of 2020 and Sky revenue increased 15% in constant currency.

We expect 12% annual earnings-per-share growth over the next five years, as the company has a long history of growth. From 2010 to 2019, its EPS grew every year, by an average of 19% per year. We expect a recovery as soon as the COVID-19 pandemic ends.

Over the next five years, as the economy normalizes, we see several drivers for the company’s earnings growth. Revenue growth will be driven primarily by a higher customer count and rate increases. Although video revenue is struggling with cord-cutting, higher revenues in the high-speed internet business have more than offset this headwind.

Shares have a relatively low dividend yield of 1.7%, but the combination of dividends and expected EPS growth of 12% per year (with a flat P/E multiple) will fuel expected returns of 13.8% per year.

Blue Chip Stock #2: Lockheed Martin (LMT)

  • Dividend History: 19 years of consecutive increases
  • Dividend Yield: 2.9%

Lockheed Martin is the world’s largest defense company. About 60% of the company’s revenues comes from the U.S. Department of Defense, with other U.S. government agencies (10%) and international clients (30%) making up the remainder.

The company consists of four business segments: Aeronautics, which produces military aircraft like the F-35, F-22, F-16 and C-130; Rotary and Mission Systems, which houses combat ships, naval electronics and helicopters; Missiles and Fire Control, which creates missile defense systems; and Space Systems, which produces satellites.

Lockheed Martin reported another good quarter for for Q2 2021 on July 26th, 2021. Companywide net sales increased to $17,029M from $16,220M and diluted GAAP earnings per share increased to $6.52 from $5.79 on a yearoveryear basis. All four business segments again increased net sales.

Source: Investor Presentation

Lockheed Martin’s backlog fell to approximately $141.66B driven by declines in Aeronautics and Space offset by increases in Missiles and Fire Control, and Rotary and Mission Systems. The company’s outlook for 2021 was increased to revenue of $67,300 $68,700 and diluted earnings per share of $26.70 $27.00.

Lockheed Martin is an entrenched military contractor. It produces aircraft and other platforms that serve as the backbone for the U.S. military and other militaries around the world. This leads to a competitive advantage as any new technologies would have to significantly outperform existing platforms. These platforms have decades long life cycles and Lockheed Martin has the expertise and experience to perform sustainment and modernization.

Growth will come organically as well as through acquisitions, such as the company’s recent $4.6 billion takeover of Aerojet Rocketdyne Holdings. The acquisition will boost Lockheed’s propulsion systems services. Moving forward we expect 8% annual earnings-per-share growth for the company.

We expect Lockheed Martin to generate earnings-per-share of $26.85 in 2021. Based on this, the stock is currently trading at a price-to-earnings ratio (P/E) of 13.4. Our fair value estimate is a P/E of 16.0, which means expansion of the P/E multiple could increase returns. When combined with the 8% anticipated EPS growth rate and 2.9% dividend yield, total return potential comes to 14.0% per year over the next half-decade.

Blue Chip Stock #1: Richie Bros. Auctioneers (RBA)

  • Dividend History: 16 years of consecutive increases
  • Dividend Yield: 1.5%

Ritchie Bros. offers endtoend solutions for buying and selling used heavy equipment, trucks, and other assets. The company’s primary selling channels include Ritchie Bros. Auctioneers, the world’s largest industrial auctioneer featuring online bidding, IronPlanet, an online marketplace with weekly auctions, and IronClad Assurance, which provides equipment condition certification.

The company generates revenue around $1.4 billion annually, and is based in Canada.

On August 5th, Ritchie Bros. announced 2Q2021 results. Net income increased 15% to $61 million. Adjusted earnings-per-share rose 2% year-over-year, as total revenue increased 2% and service revenue increased 8%.

We expect 13% annual EPS growth over the next five years. The company has many positive growth catalysts. In March, Ritchie announced that it was awarded the support of the U.S. Department of Defense with new surplus term sale contracts as the company was declared the apparent high bidder for two new East and West contracts. Each of these contracts has a base term of two years with three oneyear renewal options.

Based on our expected EPS of $1.80, shares trade for a 2021 P/E of 33, which matches our fair value estimate. The stock has a 1.5% dividend yield. Therefore, we expect total returns of 14.5% per year for Ritchie Bros. stock.

Final Thoughts

Stocks with long histories of increasing dividends are often the best stocks to buy for long-term dividend growth and high total returns. But just because a company has maintained a long track record of dividend increases, does not necessarily mean it will continue to do so in the future. Investors need to individually assess a company’s fundamentals, particularly in times of economic distress.

The coronavirus pandemic of 2020 had a significant impact on the global economy, but high-quality blue chip stocks such as the 7 in this article continued to generate profits, and pay dividends to shareholders. They also have compelling valuations that make them attractive picks for investors interested in total returns.

 

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