If you put a list together of some of the greatest blue chips the stock market has to offer, you might include The Procter & Gamble Company (NYSE/PG) among others. Procter & Gamble is just the kind of company that can thrive in a slow-growth environment. Institutional investors like it for its dividend (current yield is about 3.2%) and stability. The company offers predictability for stock market investors.
I remember when Procter & Gamble had a big miss in its quarterly earnings, right at the time when the bubble in technology stocks was bursting. The stock was basically cut in half and took a solid five years to recover—five full years, just to get back to where it was trading on the stock market before the breakdown. Even for a growing blue chip company, that’s a long time for investors.
This fiscal year, Procter & Gamble’s revenues and earnings are expected to be about flat with last year. Current expectations for fiscal year 2013 are for earnings-per-share (EPS) growth of approximately eight percent. Combined with its dividend, you could argue that this blue chip company is doing its job. The company’s stock market chart is below:
Chart courtesy of www.StockCharts.com
Other dividend paying blue chips with great track records on the stock market include Colgate-Palmolive Company (NYSE/CL), International Business Machines Corporation (NYSE/IBM), PepsiCo, Inc. (NYSE/PEP), and Johnson & Johnson (NYSE/JNJ). I would argue that all five of these blue chip stocks are worth considering when they’re down. With dividend reinvestment, I think this group makes for a great stock market portfolio.
The one thing that’s in short supply these days is growth, and things are likely to remain low and slow for the next several years, possibly for the rest of this decade. (See “Where’s the Good News? Companies Just Meeting Expectations.”) This is why stability and size win in an environment like this. When business is slow, costs get squeezed and balance sheets typically improve. And with stability of cash flow, dividends get paid.
Large-cap blue chips have been particularly strong on the stock market since the financial crisis in 2008/2009. In spite of the doom and gloom back then, one of the best trades going was to ignore the hysteria and buy a basket of blue chips. It’s a simple, yet effective investment strategy that I believe in. Buy the best dividend paying companies in their field, and reinvest the quarterly dividend income in new shares. When the next recession comes, it will be an attractive buying opportunity for long-term investors.