In this article, we will analyze the list of the best blue chip dividend stocks.
When it comes to investing in stocks, investors often keep a close eye on the company’s financial health. Why? Because it directly impacts the potential returns on their investments. This is especially crucial for income investors, as solid financial health ensures regular dividend payments and steady dividend growth. In short, a company’s strong financial footing means it’s more likely to keep the cash flowing and the dividends climbing. Blue chip companies, especially those with over $100 billion in market cap, take the lead in this area. These firms are well-established, financially stable, and top players in their industries.
The Dow Jones Industrial Average is commonly regarded as an index of blue chip stocks. This widely watched stock market index includes 30 of the largest and most established publicly traded companies in the US. The index surged by over 4.7% since the start of 2024 and in the past 12 months, it gained 16.4%.
When comparing the performance of the broader market and the Dow Jones, both of which track large-cap U.S. companies, historical data reveals a high correlation between the two indices over time. However, there have been notable instances where their performances diverged significantly. According to a report from S&P Dow Jones Indices, the market substantially outperformed the Dow Jones over one- and three-year periods. Conversely, over the 30-year period leading up to 2019, the Dow Jones slightly outperformed the broader market. This indicates that although these indices often move together, short-term performance can vary, and specific market conditions and economic factors can influence which index performs better during different periods. The Dow Jones underperformed the broader market in 2023 by a wide margin.
While analysts frequently compare the performance of these two indices, it is important to note that the Dow represents only a small segment of the economy. In contrast, the broader market includes nearly 17 times as many companies. According to estimates from S&P Dow Jones Indices, more than $11.2 trillion investments were benchmarked to the broader market at the end of 2019. This is a staggering 350 times greater than the $32 billion benchmarked to the Dow. A key reason for the broader market’s outperformance compared to the Dow last year is that the market places more emphasis on the tech giants, which were the primary drivers of the wider market’s gains throughout the year.
Returning to the importance of blue chip companies, investors favor these firms because their strong financial health allows them to grow their dividends consistently. Dividend growth has remained a strong preference of investors over the years, prompting companies to increase their dividend payouts steadily. In this article, we will take a look at some of the best blue-chip dividend stocks.
photo by scott graham on Unsplash
Our Methodology:
For this list, we began by examining the current members of the Dow 30 that boasted a minimum market capitalization of $100 billion as of July 7. From this initial group, we specifically focused on companies that consistently pay dividends to their shareholders and have yields of at least 2%, as of July 7. These stocks were then ranked in ascending order of the number of hedge funds having stakes in them at the end of Q1 2024, as per Insider Monkey’s database. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
10. International Business Machines Corporation (NYSE:IBM)
Number of Hedge Fund Holders: 49
International Business Machines Corporation (NYSE:IBM) is an American technology company that specializes in a wide range of related services, including consulting, technology, cloud computing, artificial intelligence, and data analytics. The company is currently the sole provider offering both a comprehensive technology stack through their Watsonx platform and consulting services for deploying and managing generative AI. The stock has been declining over the past decade but has recently gained momentum because of its potential in the field of AI. Since the start of 2024, the stock has gained nearly 9% and its 12-month returns came in at over 33%.
Over the years, International Business Machines Corporation (NYSE:IBM) has transformed itself into a blend of hardware, software, and consulting solutions, though it has faced challenges in maintaining consistent growth. The company is optimistic that AI will drive future revenue growth. In the first quarter of 2024, its Watsonx and generative AI business has shown strong, consistent momentum, growing each quarter, and has surpassed $1 billion in revenues since the launch of Watsonx in mid-2023. For the full year, the company continues to anticipate revenue performance consistent with its mid-single-digit growth model and approximately $12 billion in free cash flow.
Diamond Hill Capital highlighted International Business Machines Corporation (NYSE:IBM)’s AI business in its Q1 2024 investor letter. Here is what the firm has to say:
“Among our bottom Q1 contributors short positions in Dick’s Sporting Goods, International Business Machines Corporation (NYSE:IBM) and Palomar Holdings. Though we believe the quality and durability of IBM’s free cash flow-generating capabilities remain questionable, investor sentiment has improved amid optimism for the company’s still-nascent AI product suite.”
On April 30, International Business Machines Corporation (NYSE:IBM) declared a 0.6% hike in its quarterly dividend to $1.67 per share. This was the company’s 29th consecutive year of dividend growth, which makes IBM one of the best blue chip dividend stocks on our list. As of July 7, the stock has a dividend yield of 3.80%.
At the end of Q1 2024, 49 hedge funds tracked by Insider Monkey reported having stakes in International Business Machines Corporation (NYSE:IBM), compared with 50 in the previous quarter. The consolidated value of these stakes is over $1 billion. With over 1.2 million shares, AQR Capital Management was the company’s leading stakeholder in Q1.
9. Cisco Systems, Inc. (NASDAQ:CSCO)
Number of Hedge Fund Holders: 58
Cisco Systems, Inc. (NASDAQ:CSCO) is a California-based digital communications technology company that specializes in related services. Recognizing the growth potential of AI trends, the company gradually immersed itself in this revolutionary field. It has collaborated with a range of AI startups to establish a $1 billion global AI investment fund aimed at strengthening the startup ecosystem and developing reliable AI solutions. Over the past few years, the company has broadened its AI portfolio by acquiring or investing in more than 20 AI-focused projects. In addition, Cisco Systems, Inc. (NASDAQ:CSCO) has announced a new partnership with Nvidia to create the Cisco Nexus Hyperfabric AI clusters, designed to simplify the deployment of generative AI applications.
In fiscal Q3 2024, Cisco Systems, Inc. (NASDAQ:CSCO) reported revenue of $12.7 billion, which fell by 13% from the same period last year, however, managed to beat analysts’ expectations by $79 million. The revenue reflected its customers’ ongoing adoption of its available products. The company’s subscription revenue came in at $6.9 billion, which represented 54% of its total revenue for the quarter. Earlier this year, the company enhanced its cyber threat protection capabilities by acquiring data analytics and cybersecurity firm Splunk. The acquisition proved to be beneficial for the company. In the most recent quarter, Splunk contributed $413 million to the company’s revenue. Cisco’s shares are trading a forward P/E ratio of 13.24 times the average Street estimate for 2024 EPS of $3.70, which is considered a bargain within the tech sector.
Cisco Systems, Inc. (NASDAQ:CSCO), one of the best dividend stocks on our stocks, has been growing its payouts for 17 consecutive years. It currently offers a quarterly dividend of $0.40 per share and has a dividend yield of 3.43%, as of July 7. In Q3 2024, the company returned nearly $3 billion to shareholders through dividends and share buybacks.
As of the end of Q1 2024, 58 hedge funds in Insider Monkey’s database reported having stakes in Cisco Systems, Inc. (NASDAQ:CSCO), down slightly from 60 in the preceding quarter. These stakes are collectively valued at more than $1.6 billion.
