Six Dividend-Paying Blue Chips Selling at a Discount
One of the key tenets to success in the stock market, as I have learned from more than 20 years of trading, is the need to make sure you have a system in place to actively monitor your outstanding positions. Any major changes to the underlying fundamentals are critical.
Unless you invest in mutual funds or are happy with a buy-and-hold strategy, ignoring your positions is not prudent and will likely result in damage to your portfolio—and maybe even your quality of life.
In early October, when the Russell 2000 and the NASDAQ were down 14% and 100%, respectively, the thing to do was not to rush to the exits and liquidate everything. Making rash decisions at a time when stocks are selling off is dangerous. You could have sold some positions while waiting to see if the stock market could rally, which was the case.
For the majority of investors, you don’t need to be constantly staring at the screen, scanning every chart. What you need to do is be on the alert for any major changes in the sector, a company rival, or the company itself. Failure to recognize changes and red flags could result in major losses.
The risk for small-cap stocks is more intensified, as displayed by the Russell 2000 weeks earlier. Since then, the bounce has been good, with the index performing at its best in October. However, despite the rally in small-cap stocks, I would continue to be careful.
If you are in it for the longer-term, blue chips make the most sense, especially for the more conservative investors who look for steady long-term gains and dividends. Bigger and established blue chip companies can absorb more risk than the smaller companies.
If you are seeking dividend income but also want to benefit from potential appreciation in the stock, you can simply look at some of the so-called dogs of the DOW—an investment strategy that is used to find out-of-favor blue chip stocks that are paying the highest dividend yields at the time. The high dividend yield is usually associated with a downside move in the stock price, which spells out an investment opportunity for these blue chips.
As of October 30, the top six dividend yields on the blue-chip DOW were as follows:
- AT&T Inc. (T), 5.35%
- Verizon Communications (VZ), 4.42%
- McDonalds Corporation (MCD), 3.67%
- Pfizer Inc. (PFE), 3.53%
- Merck & Co., Inc. (MRK), 3.13%
- Cisco Systems, Inc. (CSCO), 3.15%
These blue-chip companies are not bad companies; rather, they simply may be facing some operational issues that can be resolved. These blue-chip companies are not going under anytime soon, but they are long-term in nature.
These “dogs of the DOW” companies are what are commonly referred to as “contrarian investments.” These are investments in stocks that may be experiencing some near-term issues, but they remain steady long-term blue-chip performers.
Years from now, look back on these words; I bet these blue-chip stocks will be much higher on the charts.