Updated on July 11th, 2018
High quality businesses with shareholder friendly managements trading at fair or better prices make for excellent long-term investments.
But finding these investments is not always easy – especially in today’s overvalued market.
This guide makes locating high-yielding blue chip stocks convenient. It includes a free excel spreadsheet download of all businesses in the Sure Dividend database with 100+ year operating histories and dividend yields greater than 3%.
Some of their performances are pedestrian, while others are exceptional.
You can learn about 5 of our favorite blue chip stocks in the following video:
Finding Top Blue Chip Stocks
Finding the best blue chip stocks does not need to be complicated. Here are a few strategies on how to find the best of the best:
- Only look at stocks with yields at or above 3%
- Examine how long the company has been in business
- Determine fair value (prefer low P/E ratios)
- Look for a strong competitive advantage
- Invest in high-quality blue chips trading at fair or better prices
This article makes identifying high-quality blue chip stocks even easier. Having an Excel document full of high-quality stocks and pertinent financial information can be extremely powerful.
Two of the most important investing metrics are the dividend yield and the price-to-earnings ratio. Below, I explain how to use the Blue Chip Stocks spreadsheet to search for stocks based on these criteria.
For those unfamiliar with Microsoft Excel, here’s how to look for stocks with high dividend yields using the Blue Chips Stock spreadsheet.
Step 1: Download the Blue Chip Stocks spreadsheet at the link above.
Step 2: Click on the filter icon in the dividend yield column, as shown below.
Step 3: Click “descending”, as shown below. This will list the companies with the highest dividend yields at the top of the Excel spreadsheet.
At the time of this writing, Sunoco LP (SUN) had the highest dividend yield of any stock in the Blue Chip Stocks list.
Looking for cheap blue chip stocks instead of the blue chip stocks with the highest dividend yields? The Blue Chip Stocks spreadsheet allows investors to filter for the blue chip stocks with the lowest price-to-earnings ratios. A walkthrough is shown below.
Step 1: Download the Blue Chip Stocks spreadsheet at the link above.
Step 2: Click on the filter icon in the price-to-earnings ratio column, as shown below.
Step 3: Click “ascending”, as shown below. This will list the companies with the lowest price-to-earnings ratios (and thus the best most attractive valuations) at the top of the Excel spreadsheet.
Right now, the Canadian Imperial Bank of Commerce (CM) has the most attractive valuation in the Blue Chip Stocks spreadsheet. This Canadian bank is trading at a price-to-earnings ratio of just 8.7, likely due to uncertainties surrounding its recently-approved acquisition of Private Bancorp (PVTB).
The remainder of this article will describe blue chip stocks in more detail and explain why these companies make solid long-term investments.
What Are Blue Chip Stocks?
Blue chip stocks are established large-cap businesses that pay reliable dividends. They have long corporate histories and provide well-known products and/or services.
For the purpose of this article, we needed quantitative characteristics to define a ‘blue chip stock’. We use a 3% yield and a 100+ year corporate history.
Both of these metrics are important in finding examples of blue chip companies. Here’s why:
- Stocks with 100+ year histories are generally reliable. The Lindy Effect suggests that a company with a very long operating history is highly likely to remain profitable for decades to come.
- Stocks with 3%+ dividend yields pay above average dividends by definition. The S&P 500 currently has a dividend yield of ~1.9%, which means that a stock with a 3% dividend generates 50%+ more dividend income than an S&P 500 index fund.
Thanks to their long operating histories and above-average dividend yields, blue chip stocks are some of the highest-quality business around.
Why is Business Quality Important?
I could tell you why I myself think that investing in high-quality businesses is important. However, I’ll leave that to someone who is much more qualified.
Warren Buffett is the most successful and influential investor of our time. Buffett started his investing career by purchasing beaten down stocks that had poor growth prospects but were trading at attractive multiples of earnings and shareholders’ equity.
Over time, Buffett has reinvented his investment philosophy.
Now, Warren Buffett touts the importance of investing in high-quality businesses. If the most successful investor in the world thinks business quality is important, shouldn’t you?
Consider the following Warren Buffett quotes as examples of his thoughts on investing in high-quality stocks.
“The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage.” – Warren Buffett
While operating history and dividend yield are two quantitative metrics to measure business quality, a key component of qualitative business quality is a company’s competitive advantage.
Having a strong and durable competitive advantage allows a company to remain viable and profitable during even the toughest operating environments.
Tough operating environments can often depress stock price valuations, presenting compelling buying opportunities for long-term investors.
“The best thing that happens to us is when a great company gets into temporary trouble…We want to buy them when they’re on the operating table.” – Warren Buffett
Building on that concept, investing in high-quality businesses gives investors greater peace of mind.
After all, holding a portfolio of speculative and risky investments can be very dangerous. Investors are best off avoiding these ‘leaky boats’ and sticking to more seaworthy vessels.
“Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.” – Warren Buffett
A last benefit of investing in blue chip stocks is that it is conducive to long holding periods.
Investing for the long term is beneficial because it allows for the deferral of capital gains tax, the minimization of transaction fees, and (most importantly) allows investors to harness the power of compound interest.
“When we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.” – Warren Buffett
“Time is the friend of the wonderful company, the enemy of the mediocre.” – Warren Buffett
The Blue Chip Stocks list quickly shows many of the strongest, most long-lived businesses around. You can see more high-quality dividend stocks in the following Sure Dividend databases:
- The 2017 Dividend Kings List: Dividend Stocks With 50+ Years of Rising Dividends
- The 2017 Dividend Aristocrats List: 25+ Years of Rising Dividends
- The 2017 List of All 264 Dividend Achievers
Alternatively, another great place to look for high-quality business is inside the portfolios of highly successful investors.
To that end, Sure Dividend has created the following stock databases:
- Warren Buffett’s Top 20 Stocks
- Seth Klarman’s Top 5 High Dividend Stocks
- Joel Greenblatt’s Top 20 High Dividend Stocks
- Bill Gates’ Stock Portfolio: Every Holding Analyzed
- Prem Watsa’s Dividend Stock Portfolio: Every Holding Analyzed
You might also be looking to create a highly customized dividend income stream to pay for life’s expenses.
The following two lists provide useful information on high dividend stocks and stocks that pay monthly dividends: