3 Blue Chip Stocks For Reliable Dividends

Money, Profit, Finance, Business, Return, Yield

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The stock market had its worst first half in the last 52 years this year due to the surge of inflation to a 40-year high and fears of an upcoming recession. Uncertainty and volatility have increased so much that income-oriented investors are looking for safe havens. In this article, we will discuss the prospects of three Blue-Chip Dividend Stocks, namely Stanley Black & Decker (SWK), State Street Corporation (STT), and Bristol-Myers Squibb (BMY). These stocks have proved resilient to recessions and offer reliable dividends, with a wide margin of safety.

Stanley Black & Decker

Stanley Black & Decker is a global leader in power tools, hand tools, and related items. The company holds the top global position in tools and storage sales. Stanley Works and Black & Decker merged in 2010 to form the current company, but the company can trace its history back to 1843.

As a global leader, Stanley Black & Decker is highly respected in its business and thus it has been able to raise the prices of many of its products without incurring a decline in their sales. This is a key competitive advantage. In addition, the company has proved fairly resilient to recessions, as the demand for its products has remained decent even during rough economic periods. During the Great Recession, the earnings per share of Stanley Black & Decker decreased 15% in 2008 and 20% in 2009 but recovered swiftly after the recession.

Moreover, Stanley Black & Decker has a markedly consistent growth record. It has grown its earnings per share every single year in the last decade, at a 10.2% average annual rate. The consistent growth record is a testament to the strength of the business model of the tool manufacturer.

Thanks to its unparalleled reputation and its resilience to recessions, Stanley Black & Decker has an exceptional dividend growth record. To be sure, the company has raised its dividend for 54 consecutive years and thus it is a Dividend King. It is also important to note that the stock is currently offering a nearly 10-year high dividend yield of 3.0%. Given its solid payout ratio of 32%, its reliable growth trajectory, and its resilience to downturns, Stanley Black & Decker is likely to continue raising its dividend meaningfully for many more years.

State Street Corporation

State Street Corporation is a financial services company which is based in Boston and traces its roots back to 1792. It is one of the largest asset management firms in the world, with approximately $4 trillion of assets under management and $41 trillion of assets under custody and administration.

State Street is one of the market leaders in its business and thus it benefits from significant economies of scale. On the other hand, it faces competitive pressure from other major financial services companies, such as Vanguard, Blackrock, and Bank of New York Mellon, which are trying to attract new customers by lowering their fees.

State Street has exhibited a remarkably consistent growth record. The company has grown its earnings per share in 8 of the last 9 years, at a 6.7% average annual rate. The reliable growth trajectory of State Street is a testament to its disciplined management.

Moreover, State Street will greatly benefit from the aggressive interest rate hikes of the Fed, as higher interest rates will enhance the net interest margin of the company. Early signs of this trend were evident in the first quarter when State Street grew its net interest income by 9% and its earnings per share by 16% over the prior year’s quarter. Thanks to positive business trends, State Street is on track to post record earnings per share for a third consecutive year in 2022.

Furthermore, State Street has raised its dividend for 12 consecutive years and is currently offering a 10-year high dividend yield of 3.7%. Thanks to its healthy payout ratio of 29%, its disciplined management, and its reliable growth trajectory, State Street is likely to keep raising its dividend at a mid-single-digit rate for many more years.

Bristol-Myers Squibb

Bristol-Myers Squibb was created with the merger of Bristol-Myers and Squibb in 1989. This pharmaceutical giant is a leading producer of cardiovascular and anti-cancer therapeutics, with annual revenues of approximately $47 billion.

The primary competitive advantage of Bristol-Myers Squibb is its ability to create patents through research & development or acquire patents for pharmaceuticals with high potential revenue. Its top three selling drugs, Revlimid, Opdivo, and Eliquis, have exhibited solid growth rates and are expected to see high peak annual sales, though the former has lost patent exclusivity in some markets.

Bristol-Myers Squibb has proved essentially immune to recessions, as the demand for pharmaceuticals does not decrease even under the most adverse economic conditions thanks to their essential nature. Moreover, the company has raised its dividend for 15 consecutive years and is currently offering a 2.8% dividend yield. Given its solid payout ratio of 28% and its immunity to recessions, the pharmaceutical giant is likely to continue raising its dividend for many more years.

On the other hand, Bristol-Myers Squibb has exhibited a more volatile performance record than Stanley Black & Decker and State Street. However, the company has greatly improved its performance in the last six years, in which it has grown its earnings per share at a fast pace every year. Overall, it is reasonable to expect Bristol-Myers Squibb to keep growing its bottom line for many more years, albeit at a slow pace in order to be on the safe side.

Final Thoughts

During recessions and bear markets, many companies cut their dividends. This is a great threat to income-oriented investors. The above three Blue Chip Dividend Stocks have proved resilient to recessions and offer attractive dividends with a wide margin of safety. As a result, they can provide a safe haven to income-oriented investors during the ongoing bear market.

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Disclosure: The author does not own any of the stocks mentioned in the article.

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