Time to Buy These 4 Blue Chip Dividend Stocks

For the stock market, 2016 has started off with a solid “thud.” In just the first month of the year the S&P 500 is down 7%. In the income focused sectors, the Energy Select Sector SPDR ETF (NYSE: XLE) is down 7%, the Alerian MLP index has lost 13% and the SPDR Dow Jones REIT ETF (NYSE: RWR) is down 4.5%. The REIT ETF is down 10% in the last three months. General market declines like this put every stock on sale and times like these are an opportunity to pick up shares of the most popular income stocks at a lower price/higher yield than you will typically find.

In every business sector there are those stocks that do a very good job for investors and are widely owned. These companies are great businesses, with tremendous track records compared to their peer group. In most market conditions the popularity of these stocks results in a high share price based on earnings metrics, and a lower yield if we focus on income stocks. In my research, I tend to use these super Blue Chip stocks as benchmarks against which I strive to dig out less popular stocks with more attractive valuations and higher yields. However, when the market is selling off across the board, it can be a good time to pick up shares of these popular income stocks to lock in a much higher than typical yield and participate in the company’s future dividend growth. Here are four blue chip income stocks that we can classify as “on sale” after the recent market declines.

Realty Income Corp (NYSE: O) is in a class by itself when it comes to REIT dividend stability. Calling itself “The Monthly Dividend Company,” Realty Income has paid a dividend for 546 straight months and has grown the dividend by a compounding 5% per year for 22 years. A recent dividend increase announcement has pushed up the O share price compared to a few months ago. However, the current share value is almost even to where it was one year ago and in the meantime, the monthly dividend rate has increased by 8.2%. The stock currently yields 4.3% and is a buy on any further price correction in 2016.

Ventas, Inc. (NYSE: VTR) is the premium healthcare REIT for dividend growth. This company has increased its dividend at a 9% annual compounding growth rate for the last decade. A year ago, VTR was trading at $80 per share with a sub-4% yield. Now VTR is under $54 and yields 5.4%. Late last year, Ventas spun off its skilled nursing facility properties into a new focused company. The current Ventas is positioned to generate close to 10% annual dividend growth.

Enterprise Products Partners LP (NYSE: EPD) is the largest midstream energy infrastructure master limited partnership (MLP). The company is conservatively managed and provides fee based services to the energy sector. With the recent distribution announcement, EPD has increased its quarterly payout for 46 consecutive quarters. Management has stated that distributions will grow by at least 5% in 2016. When energy prices (and stock values) were peaking in Fall 2014, EPD was yielding 3.5%. Now, with a 40% lower share value in spite of six more distribution increases, EPD yields 6.5%. Invest in this MLP now and you will get a great starting yield and distributions that will grow at a steady 5% to 6% annual growth rate.

Magellan Midstream Partners, LP (NYSE: MMP) is an energy pipeline and storage provider that provides a significant amount of the crude oil and refined products transport services across the U.S. MMP has increased its distribution 55 times since its 2001 IPO. Distribution growth has been close to 20% per year for the past decade and is forecast to continue to increase at a low to mid-teens growth rate. A year ago MMP yielded 3.25%. Now, after the energy sector bear market has driven down all energy related stocks, the MMP units yield 5.0%. This yield combined with a double digit distribution growth rate should produce 15% or better total returns over a multi-year period.

 

If you are not interested in making deep dive research into a lot of stocks, these high-quality blue chippers will provide you with an attractive yield and growing income stream. You can find better yield and growth combinations with work – or a subscription to my Dividend Hunter – but for investments that do not need a lot of monitoring, these stocks fit the Sleep Well at Night requirement.