Hunting for some of the most predictable stocks will have you looking at proven blue chips with dividends—and more. Learn what to buy now

Conservative investing is an investment strategy that focuses on lower-risk, predictable and stable businesses. Some of the most predictable stocks worth investing in are blue chip companies with a historical record of dividend payments.

Many of the most predictable stocks are good investments that are well-known, well-managed and widely followed “household names”, as some investors refer to them. That’s a good description of most of the stocks we analyze and recommend.

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Cyclical stocks are not some of the most predictable stocks—here’s why

Cyclical stocks have regular rises and falls in price, usually tied to business or economic cycles. When times are good, investors in cyclical stocks sometimes ignore investment drawbacks and pitfalls. When times are bad, many investors pay too much attention to risk.

Cyclical sectors like resource and energy stocks are subject to wide and unpredictable swings. In the rising phase of the business cycle, when business is booming, resource demand expands faster than resource supply, so resource prices shoot up.

This expands profits at resource companies. But when the economy slumps, commodity prices fall, and this drags down profits and stock prices. This highly cyclical sector has gone through many booms and busts.

All in all, it’s best to buy cyclicals when earnings are steady and P/Es are neither too high nor too low. That’s when buyers will likely get the most value with the least amount of risk.

P/E (price to earnings) ratios—the ratio of a stock’s price to its per-share earnings—are published regularly in newspapers and on the Internet. These financial ratios are widely followed, and are an important part of many investors’ decision making.

Note, though, that by themselves, P/Es can steer you wrong on individual stocks, and on the market in general. There are lots of stocks out there that are cheap on a P/E basis. But many will remain cheap—their share prices won’t be rising any time soon.

Dividends from companies in cyclical industries, whose profits move up and down with the overall economy, tend to be less predictable than payments from more-stable businesses such as utilities. However, the best opportunities will come from stocks that have a long history of maintaining their dividend payments, or even raising them, during economic downturns.

Some of the most predictable stocks are well-established companies

Instead of moving between extremes of risk, we continue to think investors will profit most—and with the least risk—by buying shares of well-established companies with strong business prospects and strong positions in healthy industries.

That’s not to say that there won’t be surprises that affect every company in a particular industry. But well-established, safety-conscious stocks have the asset size and the financial clout—including sound balance sheets and strong cash flow—to weather market downturns or changing industry conditions. You can get our advice on investment issues, plus buy/sell/hold advice on stocks you may be considering buying in our Successful Investor newsletter.

Some of the most predictable stocks are Canadian blue chips

Canadian blue chips are among the best high-paying dividend stocks. A company with a long-term record of paying dividends is generally one that is most deserving of the “blue chip” label in its traditional sense. Dividends, after all, are much more stable than earnings projections. More importantly, dividends are impossible to fake—either the company has the cash to pay them or it doesn’t.

Canadian dividend stocks that meet our Successful Investor criteria offer both capital-gains growth potential and regular income. In fact, dividends are still likely to be paid regardless of how quickly the price of the underlying stock rises.

What’s more, dividends from Canadian companies may come with a tax credit. This cuts your effective tax rate.

All in all, it’s realistic to assume dividends from blue chip companies will continue to contribute around a third of your total return.

Use our three-part Successful Investing approach to make better stock selections, for the most predictable stocks or otherwise

1. Hold mostly high-quality, dividend-paying stocks.
2. Spread your money out across most if not all of the five main economic sectors: Manufacturing & Industry, Resources & Commodities, Consumer, Finance and Utilities.
3. Downplay or stay out of stocks in the broker/media limelight. 

How often have normally predictable stocks surprised you with falling stock prices?