High-quality blue chip stock investments give you growth and dividend income.

We feel most investors should hold the bulk of their investment portfolios in blue chip stock investments. All these stocks should offer good “value”—that is, they should trade at reasonable multiples of earnings, cash flow, book value and so on. Ideally, they should also have above average-growth prospects, compared to alternative investments.

Blue chip stock investing involves stocks that are generally well-established, dividend-paying corporations with strong business prospects. These are companies that also have strong management that will tend to make the right moves to compete in a changing marketplace.

True Blue Chips pay off Learn everything you need to know in 'The Best Blue Chips for Canadian Investors' for FREE from The Successful Investor. Canadian Blue Chip Stocks: Bank of Nova Scotia Stock, CP Rail Stock, CAE Inc. Stock and more.  I consent to receiving information from The Successful Investor via email. I understand I can unsubscribe from these updates at any time.

Regular income from your dividend stock portfolio

Canadian dividend stocks offer both capital-gain growth potential and regular income from dividend payments. In fact, dividends are likely to still be paid regardless of how quickly the price of the underlying stock rises.

Taxpayers who hold Canadian dividend stocks get an additional bonus. Their dividends can be eligible for the dividend tax credit in Canada. This means that dividend income will be taxed at a lower rate than the same amount of interest income (investors in the highest tax bracket pay tax of around 30% on dividends, compared to roughly 50% on interest income). Investors in the higher tax bracket pay tax on capital gains at a rate of approximately 25%.

A couple of decades ago, you could assume that dividends would supply up to about one-third of the stock market’s total return. Some dividend yields are lower than they used to be, of course. But it’s still safe to assume that dividends will supply perhaps a quarter of the market’s total return over the next few decades.

When you add in the security of stocks that have dividend records going back many years or decades, and include the potential for tax-advantaged capital gains as well as dividend income, Canadian dividend stocks are an attractive way to increase profit with the least amount of risk.

Blue chip stock investments and consumer product companies

Strong consumer product companies share a number of characteristics. These include geographic diversity to protect them from regional economic difficulties, a record of rising cash flow and strong balance sheets. All these are characteristics of blue chip stocks.

We like high-quality blue chip consumer product companies because they can provide stability during a recession or economic slowdown. Typically, consumer product companies sell staples, like soap, soup and beverages that consumers buy no matter what the economy is doing.

We believe that a record of increasing dividend payments is a good indication of a strong company, especially in a slow economy. High-quality blue chip stocks will usually be in a position to remain profitable during almost any type of economic hardship or recession. Plus, you get paid dividends and earn income while you hold these stocks, even if share prices are falling.

Blue chip stock characteristics to look for

• A history of profits going back for at least 5 to 10 years
• A history of paying dividends
• Low debt
• Industry prominence if not dominance
• Geographical diversification
• The freedom to serve (all) shareholders
• Freedom from business cycles
• Ownership of strong brand names and an impeccable reputation
• Hidden assets

Blue chip stock picks we have historically continued to recommend

• Bank of Montreal (Toronto symbol BMO) is Canada’s fourth-largest bank.
• Canadian Pacific Railway Ltd., (Toronto symbol CP) transports freight over a 22,000-kilometre rail network between Montreal and Vancouver, as well as hubs in the U.S. Midwest and Northeast.
• Fortis Inc. (Toronto symbol FTS) is a utility company supplying electricity to Newfoundland and PEI.
• International Business Machines Corp. (New York symbol IBM) is one of the world’s largest computer companies with operations in over 175 countries.
• Telus Corp. (Toronto symbol T) is Canada’s second-largest wireless carrier.

Are you involved in blue chip stock investing? Do you own any of the blue chip stocks we recommend? Share your story with us in the comments.