Whatever your sources are for financial advice, you’ve probably heard time and time again that investing in blue chip stocks is a great way to provide steady, stable growth to your portfolio.
But, what exactly is a blue chip stock? Well, there’s no exact definition for it; however, Forbes has identified 5 essential characteristics of a blue chip stock.
- Longevity, meaning that the company has been in business for a long time and has proven that it can survive the ups and downs of the market.
- Reliability, meaning that they consistently report good earnings.
- Market capitalization, meaning the total value of their outstanding shares is over at least $10 billion.
- Dividends, meaning they have regular payouts to their shareholders.
- Name recognition, meaning that these are companies that even your little sister and your grandmother have probably heard of.
We’re going to let these 5 characteristics guide our way through this article as we look at some blue chip stocks. But, while most companies that are considered blue chip stocks are going to provide you with solid returns in the long run, there are still some that are better for your wallet than others.
And, in this article, I’m going to tell you the 5 best blue chip stocks to buy in 2022.
#1: Coca-Cola (NYSE:KO)
The history of Coca-Cola dates all the way back to the year 1886 when John Smith Pemberton invented the iconic drink. However, it was only when Asa Candler bought the formula and started up the Coca-Cola Company in 1892 that the brand was officially established. Today, after being around for just about 130 years, Coca-Cola now owns over 200 brands that are sold in over 200 companies.
Plus, over its long history, Coca-Cola has managed to produce fairly consistent returns, even through some of the worst economic downturns the world has ever seen. Coca-Cola’s earnings-per-share have remained around the $2-mark for the past 12 years with the exception of 2018, which was one of the worst economic downturns since the Great Depression.
And part of the reason they were able to weather that downturn (as well as the Great Depression itself) is that the Coca-Cola Company is a massive company with a huge market cap of over $274 billion, making it the 31st most valuable company in the world.
And, if we look through their dividend history, we see that they have a history of consistently returning their earnings to investors in the form of dividends. Even through that massive downturn in earnings in 2018, we see that their dividends paid quarterly have steadily risen to keep up with the growth of the company as well as inflation. And that’s partly Coca-Cola has shown its ability to continue to grow and adapt.
In fact, one of the things that makes Coca-Cola so exciting in today’s market is the fact that they just broke into the hard seltzer market with their Topo Chico brand. And, if you’ve ever been to a frat party, you know just how popular hard seltzer is these days.
On top of that, Coca-Cola will be increasing its dividend for the 59th straight year this year, showing its continued dedication to passing on its earnings to investors. It’s clear that the world’s favorite beverage company will continue to be a source of steady growth far into the future.
#2: Electronic Arts (NASDAQ:EA)
Now, unlike Coca-Cola, Electronic Arts (which most of you probably know simply as EA) has not been around since before the 20th century. However, it has been “in the game” (to quote the company’s own slogan) since 1982.
Back then, Trip Hawkins left his job at Apple to start his own company and capitalize on the budding home computer game industry. And he was early to the party since home computers only recently entered the market in 1977 and were nowhere near popular until the 1980s. Since then, the gaming industry has exploded.
Plus, as you probably already know, the pandemic has done nothing to help the gaming industry. And, according to Bloomberg, the year 2020 represented a 23% increase in the size of the gaming market. If you look at EA’s historic earnings-per-share, you can see that they were quite clearly a beneficiary of that increase, seeing as their earnings were higher in that year than they’ve ever been.
We can also see that their earnings were negative before 2012. But, since late 2014, their earnings per share have been consistently around $3.00 to $3.50 with the only major deviations in the upward direction in that super-profitable year of 2020.
EA’s market cap is right around $39.5 billion, making it one of the smaller companies that’s going to appear on this list. However, EA has established that it’s one of the major players in the video game market and that it’s here to stay.
And that’s supported by the fact that they declared their first-ever quarterly dividend in 2020, showing that they were confident that the earnings would continue to come in. It seems that they were right as they have continued to be consistent with their dividend and even boosted it up from $0.17 to $0.19 in the second quarter of 2022. And that’s also meant to show confidence and excite investors.
But, what’s really exciting about EA in 2022 is a strategic move they recently made that experts think will save them a whole lot of money. And that’s splitting off from FIFA. The split came when EA reviewed its licensing agreement with FIFA and realized that it amounted to little more than naming rights.
EA had to pay $150 million dollars to FIFA every year and FIFA had recently been looking to double that amount to $300 million per year. After this not-so-small push, EA decided that splitting off from FIFA was the better move and most experts agree with them. Their new gaming franchise will be known as EA Sports FC and is still expected to be the most popular soccer game out there despite the fact that FIFA has announced that it will partner with another developer for an officially branded game.
In summary, EA’s cash flows are expected to remain similar even though they cut out that huge $150 million licensing fee. And that’s good for investors.
#3: Apple (NASDAQ:AAPL)
Here’s another company that’s on everybody’s list of the best blue chip stocks that you can buy in 2022, and in pretty much any year for that matter. And that’s because Apple has been innovating and growing with mind-blowing consistency pretty much ever since the company opened its doors in 1976.
Steve Jobs and Steve Wozniak built their first computer using the money they earned from selling off Jobs’s Volkswagen bus and Wozniak’s fancy calculator. Today, Apple has grown to the largest company in the world by market cap, clocking in at over $2.4 trillion. And they got there by being a textbook case study on how to correctly run a business.
And, that ability to adapt, innovate, and grow has led to a consistent rise in earnings per share over the last 12 years. And that trend is mirrored nearly exactly by their sales growth over the same time period, showing that Apple has continued to stay on the cutting edge and increase its sales while also keeping its expense ratios consistent.
And, back in 2011 when Tim Cook took over as CEO, there wasn’t even so much as a hiccup, which proves that Apple is pretty much just a money-making machine that shows no sign of slowing down.
And they’ve had a long history of returning their earnings to investors in the form of dividends. If you look at their dividend history, you’ll notice that they’ve consistently increased quarter after quarter up until around 2020 when they dropped considerably.
Don’t worry, though, that was the result of a 4-to-1 stock split that happened in August of that year. And, if you aren’t too familiar with stock splits, it’s usually a company’s way of inviting smaller investors to pump more capital in, which was the case with Apple, et another signifier that they intend to keep on growing and growing.
And, of course, their dedication to innovation has continued, as they just unveiled their new MacBook Air and Macbook Pro, which feature their second-generation M2 processor chip, expected to be faster and more powerful than anything they’ve put out on the market to date. And they should have no problem selling these new products considering Apple has more brand loyalty than pretty much any other company out there.
With all of that being said, Apple is just about the most reliable and safe blue chip stock that you can go with.
#4: Starbucks (NASDAQ: SBUX)
Like Apple, Starbucks has cultivated an astounding amount of brand loyalty. For some people, the thought of drinking Dunkin Donuts is repulsive. Only Starbucks will do. Plus, they’ve got their rewards app, which gets you free drinks the more you spend your money at Starbucks and even rewards you with free stuff on your birthday.
And the result has been consistent growth in revenue over the past 12 years, proving that Starbucks has consistently been able to seize market share and continue to improve its sales. If we look at their earnings-per-share over the same time period, though, you’ll notice that they had some major dips in 2014 and 2020, which may scare off short-term investors.
However, if you’re investing in blue chip stocks, your strategy should be long-term anyway. And, as you can see, the overall trend is one of long-term growth. And despite those small downticks in EPS in 2014 and 2020, Starbucks has been able to consistently increase its dividend for the past 12 consecutive years, which shows that Starbucks has enough free cash to weather an economic downturn and still provide its investors with consistent dividends.
In the first quarter of 2022, according to Forbes, Starbucks was able to significantly increase its sales by 19% over the first quarter of 2021, this growth being driven by the North America and U.S. segment. And, while their expenses also rose during this period, it’s expected that they’ll be able to cut back their spending and increase earnings in the future, which will be good for their stock price and good for investors.
#5: T. Rowe Price (NASDAQ:TROW)
As one of the most trusted names in the world of finance with a market cap of about $28.4 billion, T. Rowe Price is a solid blue chip stock that might just make you some serious cash if you buy it now. And that’s because they’ve just taken a major hit to their stock price over the past year that they could very well recover strongly from.
Since the beginning of 2022, T. Rowe’s stock price has dropped nearly 30%, mostly due to the fact that overall sentiments about the market are low right now. However, there are some things that you should know about T. Rowe Price.
First of all, being that their business model is to sell investment vehicles to people and charge a fee on them, they measure the success of their company by assets under management (essentially, how much of other people’s money have they been given to invest). And, if you look at that metric in 2022, it has been falling slightly, but not too much.
If you look at that metric since 2019, you can see that they’ve steadily increased their assets under management year after year. AUM increased by 12.5% from 2019 to 2020 and by 28.2% from 2020 to 2021. That’s pretty darn solid growth for a company whose stock price has dropped 30%.
But, yes, as of April 30th, 2022, their AUM has declined to $1.42 billion and it could continue to move in that direction, which makes this a slightly riskier blue chip stock. However, if you need some reassurance, all you have to do is look at their historical earnings-per-share and see the consistent growth that they’ve achieved over the past 12 years. Or look at the way they’ve continually increased their dividend payouts year after year.
Yes, they’ve taken a bit of a tumble lately, but I see no reason whatsoever that they won’t bounce back within the next year or so. Finally, T. Rowe Price is an active investment company and people tend to turn to active investment when passive investment isn’t doing well. Passive investors have experienced big losses in 2022, which means that people should soon be turning to active investment companies like T. Rowe Price, driving up their assets under management and thus their stock price.
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