How to Find Blue Chip Dividend Stocks

Key Points

• Blue chip dividend stocks are shares of well-established companies with a history of reliable performance, strong financial health, and stable earnings.
• Blue chip dividend stocks can help add passive income to your portfolio. 
• You can find blue chip dividend stocks using a stock screener to compare dividend yield rates and market capitalization.

Blue chip dividend stocks are shares of well-established companies with a history of reliable performance, strong financial health, and stable earnings. These companies are typically leaders in their industries and are known for their ability to generate consistent revenue and profits over the long term.

When compared to smaller companies, blue chip dividend stocks may be more consistent and stable thanks to the financial reputation of the corporation issuing them. You can find dividend blue chip stocks using a stock screener, comparing dividend yield rates and considering the overall market capitalization of the companies you invest in. 

While not all blue chip companies pay a dividend, those that do offer the financial power of industry-leading corporations. This means that these companies can often keep paying dividends consistently or even increase their dividends over time. Read on to learn more about how you can identify blue chip companies and add the power of dividends to your portfolio. 

Understanding Blue Chip Dividend Stocks

What are blue chip dividend stocks? Before answering this question, it's important to know what distinguishes a blue chip company from less established competitors. 

Blue chip stocks are shares issued by companies that are nationally recognized market leaders. To be considered a blue chip stock, a company must have a long and consistent history operating within its industry and a solid financial record. The term "blue chip" refers to the game of poker, where players who collect the most blue chips see the highest profit. 

A blue chip dividend stock is a company that meets the criteria to be considered a blue chip company and that issues a regular dividend. A dividend is a shared portion of a company's profit distributed to investors. Investors value dividends because stocks that pay dividends can create a simple avenue to generating passive income. Investors may also reinvest these dividends into the stock using their broker's DRIP feature, compounding returns and increasing their dividend distributions. 

Do all blue chips pay dividends? Unfortunately, the answer is "no." Many new investors are surprised to learn that major blue chip stocks like Amazon.com Inc. NASDAQ: AMZN do not pay dividends despite record-breaking profits.

It is essential to know what blue chip stocks pay dividends and how to research them. While few blue chip companies are required to pay out dividends, many elect to as a way to encourage shareholders to hold their shares and avoid actively trading, which may contribute to price volatility. 

Blue chip dividend stocks tend to share a few significant characteristics:

• Stability and Reliability: Blue chip companies are known for their established market presence and strong financial performance. 
• Large Market Capitalizations: A company's market capitalization is calculated by multiplying the current share price by the number of outstanding shares. 
• Leadership in the industry: Many blue chip companies have a competitive advantage that comes with strong brand recognition and a large market share. For example, Apple NASDAQ: AAPL is a blue chip name in the tech sphere with a loyal fanbase that follows each release. 

Benefits of Investing in Blue Chip Dividend Stocks 

There are several benefits to incorporating blue chip dividend stocks into your portfolio, including:

• Reliability and Stability: Blue chip dividend stocks are usually from companies that have higher market capitalization,  strong balance sheets, and a track record of weathering economic downturns and market uncertainty. 
• Dividend Income: One of the biggest attractions of blue-chip dividend stocks is the regular income they provide. These companies have a consistent history of distributing a portion of their earnings back to shareholders, and due to higher revenues, they are often in a better position to continue paying in the future. These regular payments can appeal to income-oriented investors like retirees, who rely on a steady income stream to meet living expenses but cannot take excessive risk when selecting investments. 
• Dividend Growth Potential: Many blue chip companies are also Dividend Aristocrats, meaning they have a track record of consistently increasing their dividends over an extended time period. If corporate revenues are good, this dividend growth has the potential to outpace inflation, providing investors with a hedge against rising living costs.
• Long-term Capital Appreciation: These companies usually have solid fundamentals and more customer loyalty that may contribute to share price appreciation over the long term. This unique combination of dividend income and capital appreciation can enhance total returns, making blue chip dividend-paying stocks a viable alternative to investors with multiple risk tolerance levels. 

How to Find Blue Chip Dividend Stocks

Use the following steps to begin your research and start investing. 

1: Determine Which Companies are Blue Chips 

When evaluating if a company is a blue chip, consider the following:

• Market Capitalization: Blue chip stocks typically have a large market cap, indicating a well-established company with a significant market presence. 
• Earnings Per Share (EPS): EPS indicates a company's current profitability and is calculated by dividing net income by the number of outstanding shares.
• Price-to-Earnings (P/E) Ratio: The P/E ratio compares the stock's current price to its earnings per share. A lower P/E ratio may suggest that the stock is undervalued, but comparing it with industry averages is crucial rather than looking for a general "good" P/E ratio.
• Debt-to-Equity Ratio: The debt-to-equity ratio reflects the proportion of debt used to finance the company's assets. A lower debt-to-equity ratio suggests a lower financial risk, which can be particularly important for long-term investors. 
• Balance Sheet Strength: Look for companies with low debt levels and strong cash flows. This indicates financial health and the ability to sustain operations during tough economic times.
• Earnings Consistency: Companies that have consistently grown their earnings over time are generally more stable and reliable investments.

2: Filter Investment Options

MarketBeat provides various research tools and screeners to help you narrow down your search, like our dividend screener that allows you to filter stocks by dividend yield and other features, helping you locate higher-paying options. And lists like the Dividends Aristocrats and Dividend Kings can help you identify companies that have increased their dividend payments year after year. 

3: Sort by Dividend Yield

Consider the dividend yield displayed on each stock's page to understand better what you might expect in returns on your initial investment. Be wary of stocks with dividend yields above 10%, as this may indicate that the company may be unable to continue paying its dividend. 

4. Review Dividend History

The best dividend stocks work to keep dividends proportional to the company's changing profits. Ideally, you should invest in blue chip companies with a long history of increasing annual dividends year after year. This will help you see a stronger return on your investment through continued dividend reinvestment. 

Build Passive Income Through Blue Chips

Blue chip dividend stocks can offer investors stability, reliable income, and potential for long-term capital appreciation. While not all blue chip companies pay dividends, those that do provide a valuable source of passive income, often accompanied by the potential for dividend growth. By carefully researching and selecting blue chip dividend stocks—considering factors such as market capitalization, earnings consistency, and dividend history—investors can build a resilient portfolio capable of weathering market volatility while benefiting from regular income and the potential for future growth.