It's said the best blue chip dividend stocks never go out of style. True, they might tend to lag in up markets, but they're also likely to hold up better when everything is selling off.
That defensive bias might just be what investors need amid an increasingly opaque outlook for equities.
The Federal Reserve's dovish pivot to forecasting interest rate cuts in 2024 has stocks rallying hard into the end of an already remarkable year. The benchmark S&P 500 gained more than 25% on a total return basis (price change plus dividends) for the year-to-date through mid-December. The tech-heavy Nasdaq Composite rose almost 45%, including dividends, over the same span.
Alas, the Dow Jones Industrial Average, that elite bastion of 30 blue chip stocks (29 of which pay dividends), returned "only" 15%. To be sure, that's a very good year on an absolute basis: the Dow's annualized return over the past three decades comes to a bit more than 10% before inflation. And yet the fact remains that the Dow lagged the S&P 500 and Nasdaq by painfully wide margins this year.
Although the very bluest of blue chip dividend stocks were collective laggards in 2023, their defensive aspects could very well come in handy over the next 12 months or so. After all, as giddy as the market may be about the Fed's intentions to loosen monetary policy, a host of risks remain in the new year. To take just one example: the probability of recession hitting the U.S. over the next 12 months still stands at more than 50%, according to the New York Federal Reserve's yield-curve model.
Happily, Wall Street's top-rated blue chip dividend stocks – with their impregnable balance sheets and rivers of free cash flow – are well-positioned to generate income and deliver outperformance in the year ahead and beyond, analysts say.
How to find the best blue chip dividend stocks
In order to find the best blue chip dividend stocks to buy now, we started by screening all 30 Dow Jones stocks for Wall Street analysts' top-rated names.
Here's how the process works: S&P Global Market Intelligence surveys analysts' stock ratings and scores them on a five-point scale, where 1.0 equals Strong Buy and 5.0 means Strong Sell. Any score of 2.5 or lower means that analysts, on average, rate the stock a Buy. The closer the score gets to 1.0, the stronger the Buy call. In other words, lower scores are better than higher scores.
The dividend yield on the Dow has fallen below 2%, so we further limited our screen to Dow dividend stocks with yields of more than 2% as of December 18.
And so, without further ado, below please find the five Dow dividend stocks yielding more than 2% that analysts like best heading into the new year. Note well that two of these names are among the top holdings in Warren Buffett's Berkshire Hathaway equity portfolio.
