7 ways to identify the high dividend blue chip stocks that will help you cut the risk—and boost the returns—of your portfolio

If you only buy the best high dividend blue chip stocks, you’ll automatically stay out of almost all the market’s worst stocks.

For a true measure of stability, we focus on companies that have maintained or raised their dividends during economic and stock market downturns. These firms leave themselves enough room to handle periods of earnings volatility. By continually rewarding investors, and retaining enough cash to finance their businesses, they provide an attractive mix of safety, income and growth.

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High dividend blue chip stocks have strong balance sheets

A balance sheet is a financial statement that gives a snapshot of a company’s assets, liabilities and shareholders’ equity. Investors use this data to determine how sound a company’s finances are—and also to discover if it has any “hidden assets”.

To pay dividends, a company must be able to count on a reliable source of revenue, but it must  also have a strong balance sheet. How a company spends its money is important, too. Acquisitions can be good, for instance, but too many of them can take a bite out of a company’s cash and push goodwill to uncomfortable levels.

High dividend blue chip stocks have low debt

It doesn’t matter if you’re investing in blue chip stocks or penny stocks, the company under consideration should have manageable debt. When bad times hit, debt-heavy companies often go broke first.

High dividend blue chip stocks often have hidden assets

The best time to find hidden assets is when they’re still hidden, long before the company begins taking steps to profit from them. Understanding and seeking out hidden assets while you’re evaluating a stock can add enormously to your profits in the course of an investing career.

Hidden assets can also cut your risk because stocks with hidden assets are likely to hold up better than those whose assets are easier to spot, since they are the last stocks that experienced, successful investors sell. When times are good, on the other hand, stocks with hidden assets tend to do better than average. Good times give them opportunities to put their hidden assets to work.

High dividend blue chip stocks are prominent in their markets

We look for dividend stocks that have industry prominence, if not dominance. Our reasoning, besides brand recognition, is that major companies can influence legislation, industry trends, etc. to suit themselves. Minor firms can’t do that.

Companies that are prominent, or dominant, in their industries are some of the best investments you can make. That’s because they are especially well positioned to weather economic downturns and fend off new competitors.

High dividend blue chip stocks have the freedom to serve all shareholders

High-quality stock picks must be free of excess regulation, free of dependence on a single customer, and free from self-dealing insiders or parent companies. Canada-wide operations are good, multinational better. There’s extra risk in firms confined to one geographical area.

The best high dividend blue chip stocks have recently increased their dividends

There are good reasons companies trumpet their dividend hikes. They are more than a reward to shareholders, they’re a statement of self-confidence by the company. We trace increases over five years and more, to get a timely reading on the company’s commitment to dividend increases.

High dividend blue chip stocks present a long-term record of profit

Look for blue chips shares that are well established companies and have a record of rising sales and ideally profits going back 5 to 10 years. What you may think of a sure thing could actually be an aging company that is on its last legs. The types of blue chip shares we recommend have a history of profits—or perhaps cash flow—going back for some time. Companies that make money regularly are safer than chronic or even occasional money losers.

Although we recommend investing in dividend-paying stocks, extremely high dividend yields can be a sign of danger. This is because a high yield may reflect widespread investor skepticism that a company can keep paying its current dividend. Have you had this experience, and if so, what did you learn from it?

Have you ever invested in a blue chip stock that turned out to be a disappointment? What happened?