Who doesn’t want to be paid dividends? It’s an extra stream of income or more precisely passive income. To top it off, imagine if you had a dividend that provided you with a high yield. Sounds promising, right? Well, take five minutes to read this article, and I promise you, you will not regret it.
Firstly, let’s answer the obvious question. What is a high yield? Many financial experts believe anything above 4% is a high yield. However, people have opposing views, and some agree while others don’t. Nevertheless, imagine if you had a 4% return and 6% capital appreciation. That comes out to an annual return of 10%, which will have you enjoying the wonders of compounding in a few years.
Before you go rushing to find stocks that pay 4% in dividends, let’s briefly go over a dividend trap. Some companies offer a very high return, for instance, 14%. The initial reaction of any investor would be why am I not investing in this? But here’s the thing, easy money is possible, but it’s also challenging to achieve. Many of these companies end up slashing their return rates in half because they’re unable to raise money, and as a result; investors incur losses on their investments. Don’t consider investing in anything with a high return without expert analysis and consultation.
Dividing the dividend per share by earning per share gives us a figure known as the payout ratio. The payout ratio is the number one tool to avoid walking into a dividend trap. It tells you how much a company is paying as dividend compared to how much they’re making in profits.
- Anything above 100% is bad news. That implies the company won’t be able to cover the dividend and will have to resort to debt.
- 70% presents less risk, but just one wrong financial move and your investment could go to shambles.
- 40%-60% is the sweet spot. While you can’t accurately measure how well the stock will do, it still gives you a general idea of whether the stock is safe or not.
Blue Chip Stocks
In poker, blue chips are the best; they carry the highest value and are limited in quantity. Hence, the term blue-chip stocks. In light of the stock market, these stocks belong to very stable and established companies that are often unbothered by changes in the economic environment. These are precisely the companies you should consider investing in if you wish to create a stream of long term passive income.
High Dividend Blue Chip Stocks
I’ve listed down some high performing blue-chip stocks that’ll add value to your portfolio. Additionally, all these are growth dividend stocks meaning they have a history of improving performance annually.
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Westrock Company (WRK)
A packaging company that has experienced some severe growth due to its close affiliation with Amazon. It provides investors with a high dividend yield of 4.7% and a 55% payout ratio. This makes it the number one choice among investors for long term sustainable returns.
PPL Corporation (PPL)
PPL Corporation is a mega utility company that provides electricity to nearly 10.5 million people. Energy will always be in demand, and investing in this company will always carry stable returns if not high. Currently, the company has an excellent dividend yield of 4.7% and a payout ratio of 67%—certainly not the highest, but once again, very stable.
Prudential Financial (PRU)
PRU is a fortune 500 company that offers investment management expertise to all kinds of investors. On a somber note, this stock is a gold-mine: A 4.6% dividend, 43% payout ratio, and a 13% increase in average dividend yield over the past five years. This is a great stock that will bring growth and wealth into your portfolio.
Before rushing off to find blue-chip stocks, it’s my humble suggestion to hire a consultant or perform market research yourself. Blue-chip stocks are highly useful provided you don’t pour your funds into one stock. Keep a diverse portfolio and enjoy the returns.