Insights

3 Blue-Chip Dividend Stocks to Buy on the Dip

One thing billionaire investor Warren Buffett hates to do is to lose money. And investing in blue-chip stocks with strong financials that pay dividends can help minimize the odds that you lose money in the long haul. Although all the stocks listed here are in negative territory this year, they’re more than likely to recover.

CVS Health (NYSE: CVS)Home Depot (NYSE: HD), and Intel (NASDAQ: INTC) all pay dividend yields that are far higher than the S&P 500 average of around 1.4%. Together, these stocks can diversify your portfolio and serve as pillars to build upon for years.

Image source: Getty Images.

1. CVS Health

CVS is one of the largest healthcare companies in the world. In addition to owning a top retail pharmacy, it also has a health insurance business since it acquired Aetna in 2018. That diversification can make it one of the safer healthcare investments to hold. Year to date, the stock has fallen 7%, which is better than the S&P 500’s decline of 13%. And with nothing wrong with the business’s fundamentals, the dip in price makes now a good opportunity to load up on this ultra-safe dividend stock.

Today, CVS generates close to $300 billion in annual revenue. Last year, sales of $292 billion rose 8.7% year over year. And while the company normally nets a modest profit margin of less than 3%, that still resulted in just under $8 billion in net income for 2021. Over the trailing 12 months, CVS has reported diluted earnings per share of $6.01

Those profits are sufficient to cover the company’s dividend per share, which on an annual basis is $2.20 and yields 2.3%. Due to its size and consistently strong bottom line, CVS is one of the safer dividend stocks you can own in the healthcare industry.

2. Home Depot

Home Depot is a name that has become synonymous with home repair. The retailer is a go-to place for tools and anything you might need to help maintain or improve the look of your home. Home Depot generates better margins than CVS; in the past four fiscal years, the retailer’s bottom line has been at least 9.7% of revenue. 

During the past couple of years the real estate market has been red hot. That, combined with people spending more time at home during the pandemic, has led to a surge in home repair projects. Home Depot’s net revenue for its fiscal 2021 (ended Jan. 30, 2022) was more than $151 billion — 37% higher than the $110 billion it reported two years earlier before the pandemic hit. As a result of all that growth, the company’s EPS has soared from $10.25 to $15.53. Even if there’s a slowdown in the business, Home Depot is in excellent shape to cover its dividend, which totals $7.60 per share annually. Its yield of around 2.5% is slightly better than the payout from CVS.

However, the stock is down more than 26% in 2022 as investors are likely anticipating a sharp slowdown in revenue. But the good news is Home Depot is still growing — in May, the company released guidance that estimated sales growth of 3% for the current fiscal year. Its strong financials and continued growth make Home Depot an underrated stock to be holding right now.

3. Intel

Shares of Intel have fallen more than 15% this year as demand in the PC market has been lackluster. Net revenue for the three-month period ended April 2 totaled $18.4 billion and was down 6.7% year over year. And the company’s guidance for next quarter called for revenue that wasn’t any better — just $18 billion.

However, these are short-term issues facing a business that has a strong future over the long term. The company is investing billions in expanding its chip manufacturing capabilities to help address the chip shortage; in January, it announced plans to invest $20 billion for two factories in Ohio.

The company’s strong balance sheet, which includes close to $40 billion in cash and short-term investments, enables Intel to take on big investments that can help grow the business over the long haul. Plus, the company is a money-making business that has generated free cash flow of $9.8 billion over the trailing 12 months. That’s enough to support the $5.7 billion it paid out in dividends during that time while also taking on growth initiatives. That makes its dividend yield of 3.4% look incredibly safe for investors who want both growth opportunities and recurring income. 

Intel’s business generated more than $79 billion in revenue last year and on that, it earned profits of nearly $20 billion, which equates to a net margin of more than 25%. Regardless of what short-term challenges Intel faces, this is still a rock-sold business to invest in. It makes a ton of profit, brings in loads of cash, and pays a great dividend.

David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Home Depot and Intel. The Motley Fool recommends CVS Health and recommends the following options: long January 2023 $57.50 calls on Intel and short January 2023 $57.50 puts on Intel. The Motley Fool has a disclosure policy.

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