Blue-chip dividend stocks are stable, dependable investments. They’re linked with established, earnings-generating companies. These stocks offer capital appreciation and regular dividends.
They’re resilient during market downturns, appealing to risk-averse investors. Similar to last week’s article, today we’re analyzing three more attention-grabbing blue-chip dividend stocks.
These stocks span various financial sectors and offer diverse investment opportunities. Each stock has unique strengths like strong finances, market presence and growth prospects. Exploring these details, you’ll understand why these stocks may be beneficial for your portfolio if you can stomach the risks.
3M (MMM)
While 3M (NYSE:MMM) does deserve to be your first choice as one of those blue-chip dividend stocks to add to your portfolio, it comes with a massive caveat. MMM stock’s dividend yield is so juicy at 5.84% because it lost 19.83% of its value over the past year. All else being equal, a high yield means a high risk and vice versa.
So although it’s currently one of the highest-yielding dividend aristocrats out of the pack, it comes with an added question mark about its future to deliver total returns, which is what ultimately matters in dividend investing. As Bloomberg reported, MMM stock is getting buried under lawsuits. The industrials giant reportedly got slapped with $300 million in jury awards over selling defective earplugs to military veterans.
Commentators have alleged that it’s trying to use bankruptcy proceedings for one of its subsidiaries to worm its way out of the further case against it – but this may be wishful thinking. The total liabilities of the lawsuits could allegedly stretch well beyond ten figure mark. Some analysts predict it may cost the company up to $100 billion.
The other side to the argument is that the lawsuits may already be baked into the stock price. It’s not uncommon for giant corporations to have towers of insurance policies to protect them in cases just like these. So MMM may not be the apocalypse scenario that some investors dread.
VFC Corporation (VFC)
If your risk appetite isn’t satisfied with MMM stock, take a look at VFC Corporation (NYSE:VFC). This little stock trades for under $20 and has a dividend yield of 6.11%. A big reason for its yield is that its crowns were removed after losing its status as both a dividend king and a dividend aristocrat this year. I’d dread being part of management that just killed 50 years of consecutive dividend increases.
VFC is known for owning solid consumer discretionary brands like Vans, North Face, Dickies, Timberland and others. Due to a shocking financial performance, its EPS recently shrank 367.8% quarter-over-quarter. While some brands like Vans and Dickies were once exceedingly popular in early 2000 culture, some commentators have asked why you no longer see people wearing them today? Fashion changes with the times. These brands may be considered more niche or vintage compared with their stellar popularity over twenty years ago.
Due to its dividend cut and sad financial performance, it’s down 56.61%. over the past year. While its forward P/E is an absurd 327.17, things come back to reality at 7.99. Still, analysts are generally bullish on its recovery, and its sell-off could’ve been an overreaction. Its consensus price target is $24.70, and the brand appointed a new CEO to help turn things around.
Altria Group (MO)
Altria Group (NYSE:MO) is another one of those blue-chip dividend stocks with a fantastic dividend yield of 8.25%. But this company, too, is contentious. Altria is famous for its portfolio of tobacco companies. The dilemma that investors face with MO stock isn’t just an ethical one, but also its overall longevity as a business. MO stock pays out more in dividends than it earns in net income, with a payout ratio of 120%. Although net income is accounting profits, its free cash flow (FCF) is also concerning. The last time its FCF saw a substantial improvement was three years ago.
No matter how you look at it, its dividend cannot keep increasing and be paid in the future if its FCF doesn’t see a corresponding increase. It will run out of money at some point. It has around $4 billion in cash on its balance sheet, so the dividend isn’t in danger any time soon. It’s the changes in the investing landscape that worries me more.
Since the world has become more socially conscious through the rise of ESG investing, both individual and institutional investors are more aware than ever of the dangers of supporting tobacco companies. The younger generation is vaping more now too instead of smoking, and MO stock’s major encroachment into the vaping market was largely a failure with its divestment of Juul Labs.
As regulators continue to crack down on the bad habit, MO stock’s outlook remains uncertain, and thus investors receive a higher yield for the higher risks involved.
On the date of publication, Matthew Farley did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
