Do blue chip stocks pay dividends? The top blue chips mostly do, and many have a long history of rewarding shareholders with those payments

Do blue chip stocks pay dividends? Most do, even though a stock can still be a blue chip if it doesn’t.

However, 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 important, dividends are impossible to fake—either the company has the cash to pay them or it doesn’t.

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Do blue chip stocks pay dividends? Yes, most do, and here’s what it means to you as an investor

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 as much as a third of the market’s total return over the next few decades. In addition:

• Dividends can grow. Stock prices rise and fall. Interest on bonds holds steady at best. But dividend paying stocks like to ratchet their dividends upward—hold them steady in a bad year, raise them in a good one. That gives you an advantage against inflation.
• Dividends are a sign of investment quality. Some good companies reinvest profits instead of paying dividends. But fraudulent and failing companies are hardly ever dividend paying stocks. So if you only buy stocks that pay dividends, you’ll automatically stay out of almost all the market’s worst stocks.

Do blue chip stocks pay dividends? Yes, and the best have a historical record of doing so

The blue-chip investments we recommend typically have a history of profits going back for at least 5 to 10 years. Companies that make money regularly are safer than chronic or even occasional money losers.

Blue chip companies can give investors an additional measure of safety in volatile markets. And the best ones offer an attractive combination of moderate p/e’s (the ratio of a stock’s price to its per-share earnings), steady or rising dividend yields (annual dividend divided by the share price) and promising growth prospects.

A look at dividend growth stocks and how they may fall into your portfolio

Dividend growth stocks offer investors a measure of security. However, at the same time, it’s also important to avoid judging a company based on the fact that it pays a dividend. Nor should you be tempted solely by a high dividend yield (the percentage you get when you divide a company’s current yearly payment by its share price), because high yield can sometimes be a danger sign rather than a bargain.

As well, always remember that while growth stocks hold the potential for greater gains than conservative selections, they can expose you to a higher level of risk—even if they are dividend-paying stocks. The best dividend stocks, growth focused or not, will have an established business and a history of building revenue and cash flow.

Don’t sell your blue chip stocks too early if you want to reap their benefits

It’s all too easy to sell a blue chip investment that looks like it’s headed for a downturn, only to buy another that is headed for a collapse. For that matter, if you make a habit of selling whenever you feel the market’s risk has gone up, you will wind up selling your best stocks way too early.

You can always find a rationale for selling. Market commentators are continually thinking up new ones, based on recent market strength or weakness, historical market patterns, political or economic predictions, changes in tax policies—the list is endless. This is a good thing. After all, you can only sell a stock if somebody wants to buy it.

Before you act on a selling rationale, take a broader look. Consider facts about the blue chip investment, and about your investment goals and temperament. If the selling rationale makes sense and you find additional good reasons to sell, then selling may be the right thing to do. But it’s always a bad idea to sell a good stock for trivial or transitory reasons.

Our three-part strategy for building a portfolio—including with blue chip stocks  

We feel most investors should hold a substantial portion of their investment portfolios in securities from blue chip companies.

Here are three suggestions for building a portfolio, from our Successful Investor philosophy:

1. Spread your stocks over most if not all of the five main economic sectors.
2. Invest mainly in high quality, dividend-paying stocks.
3. Avoid or downplay stocks in the broker/media limelight.

For even blue-chip stocks a high yield can be a warning sign of a coming price drop. What if any firsthand experience do you have?

What is the biggest mistake you’ve made with a blue chip stock?