blue chip stocks

How to Choose the Best Blue Chip Stocks for Your Portfolio

The idea of buying blue-chip stocks is a great long-term strategy for value investing. We can gradually build wealth and passive dividend income with blue-chip stocks through dollar-cost averaging.

Today, we share what blue-chip stocks are, and how to find the best opportunities with high dividend yields to speed up your journey to financial independence.

What Is a Blue-Chip Stock?

Blue-chip stock is a name commonly reserved for industry-leading companies with the strongest products and brands within a niche.

Blue-chip companies usually have the following characteristics:

  • Larger than $10 billion in market capitalisation.
  • A strong competitive edge such as technological barriers or exceptional products and services.
  • A long history of steady growth and overcoming market crashes.
  • Usually a key component of market indices such as S&P 500, Dow Jones Industry Average or NASDAQ Composite.
  • Though not all blue-chip stocks issue dividends, dividend-earning blue-chip stocks have the potential of growing dividends in the long run.

So blue-chip stocks work very well with the buy-and-hold strategy for portfolios with long-term investments.

Are Blue-Chip Stocks Safe?

Value investors consider buying and holding blue-chip stocks pretty safe investments, because these stocks usually don't fluctuate very much during economic cycles and times of high market volatility. Investing in blue-chip stocks is low risk and a way to build personal equity in the long run.

Advantages of Investing in Blue-Chip Stocks

  • Mature and stable business model.
  • Excellent corporate governance.
  • Financially strong.
  • Less volatile in market value.
  • Stable and consistently growing dividends from dividend kings and dividend aristocrats.
  • High liquidity.
  • Good candidates for long-term investing.

Disadvantages of Investing in Blue-Chip Stocks

  • Higher stock prices.
  • A smaller upward movement in a bull market.
  • Not suitable for short-term investment.
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How to Find Blue-Chip Stocks With High Dividend Yields?

Dividend Stock Screener provides a few easy-to-use filters that help us find blue-chip stocks with high dividend yields.

dividend screener filter
Filter settings to find high dividend yield blue-chip stocks.
  • Since the US stock market is mature with huge trading volume, we can filter for US stocks only.
  • We want to find extremely profitable companies, indicated by Return on Equity (ROE) >15%, which means the company generates a lot of profit from shareholders' equity.
  • We can find mature companies with a long history of growth, using the 5-year average of Revenue Growth (5Y) >15%, which shows a medium to long-term growth potential.
  • The 5-year average of EPS Growth (5Y) >15% means the company is highly profitable. Since the stock price correlates well with EPS, this also means strong upside potential to the stock price.
  • By picking Market Cap >$10 billion, we select mature companies with less volatile stock prices.

Finally, we sort the list by Dividend Yield %, to find blue-chip stocks with the highest dividend potential that meet our safe withdrawal rates in retirement.

high dividend yield list
A list of high dividend yield blue-chip stocks.

The list of high dividend blue-chip stocks shows CE's Fair Value of $165.67 is greater than the market price of $113.89, with a 45.46% Upside potential.

ce blue chip stock
CE is an undervalued blue-chip stock with a high dividend yield.

So we can purchase the Celanese Corp stock while it is undervalued to enjoy a potential 45% bullish outlook and between 1.85% to 2.39% Dividend Yield annually.

Celanese Corporation is a world leader in the chemical industry, and a component of both the S&P 500 and Russell 1000 indices. All these qualities indicate CE is a blue-chip stock worthy of long-term investment. We can even trade Covered Calls on CE to boost our returns.

Now you know how to find dividend-producing blue-chip stocks using the Dividend Screener. Remember to use the screener often to find the best blue-chip stocks to buy to accumulate passive income in the long run.

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