Indeed, getting paid as you await stock appreciation can allow you to have patience in the markets. Currently, there is a lot of uncertainty in the market. From Federal Reserve policy, rising interest rates, a weakening consumer and a slowing economy, all these factors could impact stocks negatively. Blue-chip stocks with dividends offer stability and a reliable income stream during this period of uncertainty.
According to Finviz, the following S&P 500 stocks yield over 4% and have payout ratios below 80%. Additionally, they are cheap, trading at a forward price-to-earnings ratio below 15. In terms of EPS growth, analysts expect more than 10% growth in 2024 and 2025. Let’s highlight the investment thesis for these stocks.
Pfizer (PFE)
After resetting expectations, Pfizer (NYSE:PFE) may be ready to rally. Gone are the pandemic days when the stock experienced robust sales from Covid-19 product sales. On October 13, the company updated its guidance to reflect lower Paxlovid and Comirnaty revenues. With the reset, investors can now move past Covid-19 product revenues and focus on the rest of their business.
Looking at non-Covid products, Pfizer is executing flawlessly. In the recently released third quarter 2023 results, they grew 10% year-over-year. Yet, the stock is down over 35% year-to-date. Clearly, the market is focusing on weakness in Covid revenues. However, the market is making a mistake and ignoring the strength of the rest of the business. That’s why it’s among the top blue-chip stocks with dividends to buy.
Based on management’s diluted EPS guidance of $1.45 to $1.65, the stock is trading at 20 times 2023 earnings. However, if you exclude the $5.6 billion non-cash charge due to inventory write-offs, the stock is undervalued. According to Wall Street consensus, earnings will rebound to $3.18 in fiscal year 2024.
Besides, after the selloff, PFE stock boasts a 5.25% yield. It is a reliable dividend growth company that has grown its dividend for 12 consecutive years. Moreover, given the low 56% payout, there is room for future hikes.
Management expects 6% to 8% operational revenue growth in 2023 after excluding COVID-19 products. Also, analysts expect double-digit earnings growth in 2024 and 2025. Pfizer is snapping out of its Covid-19 hangover and is ready for the next growth phase.
KeyCorp (KEY)
The indiscriminate selling in regional banks due to the banking crisis and rising rates has created some exciting opportunities. One example of blue-chip stocks with dividends in the banking sector to consider is KeyCorp (NYSE:KEY).
Considering its attractive dividend profile, it’s time to buy this regional bank. It currently yields an impressive 7.20%. Indeed, KeyCorp has been an outstanding dividend stock for shareholders. It has raised its dividend for 12 straight years. Notably, the bank’s five-year dividend growth rate is 10.40%.
The bank has been lumped into the same group as other challenged banks. However, as third-quarter results revealed, it is in excellent shape. Average deposits increased by $2 billion and the CET1 ratio was an impressive 9.8%.
Notably, the bank will experience a net interest income tailwind throughout the next several quarters as its short-term swaps and treasuries reprice. In 3Q FY2023 results, management revealed a $1 billion net interest income benefit by the first quarter of 2025.
Analysts are also bullish due to this net income tailwind. When upgrading the stock, analyst Bill Carcache from Wolfe Research noted the bank would benefit from higher-for-longer interest rates. He noted that net interest income was muted previously due to hedging activity.
Another boost has come from famed bond investor Bill Gross buying regional banks. He highlighted KEY stock as one of the undervalued regional banks he was buying. Buy KEY stock and enjoy a 7% yield as you wait for gains as net income improves.
United Parcel Services (UPS)
United Parcel Services (NYSE:UPS) has had a rough 2023. Labor negotiations led investors to dump the stock. Moreover, as UPS employees threatened to strike, they lost business to rivals such as FedEx (NYSE:FDX). These challenges have led to a greater than 15% YTD selloff.
However, the selloff presents an opportunity in one of the best high-quality blue-chip stocks with dividends. Currently, the integrated freight company trades at 14 times 2024 earnings. That’s a depressed valuation for a blue chip that will benefit from the growth in e-commerce throughout the next decade.
In terms of dividends, UPS has been a consistent dividend payer. It pays a quarterly dividend that has grown at a 12.38% annual rate throughout the past five years. As of this writing, the dividend is an impressive 4.54%.
Now that the labor negotiations are in the rear-view mirror, the company can focus on executing. Demand is fine, as the announcement to hire more than 100,000 holiday workers showed. The company has numerous opportunities to offset the increase in wage costs.
As management highlighted in their investor update, they have various strategies to offset the wage increases. First, they plan for disciplined growth by using price increases to match the value they provide. Secondly, they will use automation to increase productivity in their operations.
Yes, 2023 was a challenging year for UPS as it lost some customers around the labor negotiations. However, e-commerce is growing and the company can be a secular volume grower. Furthermore, management will offset labor cost increases through pricing and productivity gains. Buy one of the top blue-chip stocks with dividends at a discount to intrinsic value.
On the date of publication, Charles Munyi did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Charles Munyi has extensive writing experience in various industries, including personal finance, insurance, technology, wealth management and stock investing. He has written for a wide variety of financial websites including Benzinga, The Balance and Investopedia.