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Blue-chip dividend stocks are great for long-term income investors. They make money during both the good times and the bad. This allows them to pay a steady stream of dividends to shareholders.
Although, not all blue-chip stocks are created equal. Some lose their luster or disappear altogether. For example, the Dow Jones Industrial Average has dropped all of its 12 original stocks. General Electric was the last to go in 2018. That's why it's important to find the stocks that will stick around and maximize shareholder value.
In our search, we've found two dividend stocks that are American classics - although one looks like a much better investing opportunity. Let's dive in...
No. 1 Blue-Chip Dividend Stock to Watch: AT&T
AT&T Inc. (NYSE: T) is growing as the world becomes more connected. More smartphones, watches, doorbells, cars, and other devices are connecting with the Internet of Things. AT&T is profiting along the way.
The company provides wireless services to over 150 million subscribers. On top of that, the company is building out its ecosystem with other services. It recently acquired Time Warner for its huge library of brands such as HBO and Warner Bros.
The competition is fierce in streaming, but AT&T has the scale and properties to be a leading force. This will also help AT&T create new bundled offers to keep existing AT&T subscribers as well as pull in new subscribers.
To acquire Time Warner, AT&T took on a lot of debt. Many investors were worried the company overleveraged, and as a result, they bid down the share price. However, this presented a great investing opportunity, and shares have already climbed 20% this year. But there's still plenty of room for this blue-chip dividend stock to climb.
Investors can also collect over a 5% dividend yield based on the current share price. That far outpaces what you can collect elsewhere in the market. Low interest rates have made it harder for income investors.
No. 2 Blue-Chip Dividend Stock to Watch: Ford
The auto industry is changing, and Ford Motor Co. (NYSE: F) is lagging behind. Tesla and other tech innovators are stealing market share. Ford's vehicle market share in the United States has dropped from 19.9% in 2002 to 14.4% last year.
Ford is losing against other manufacturers, but on top of that, total car sales in the United States are under new pressure. Consumer trends are putting downward pressure on car sales, and interest rates can't drop much further.
The American Dream of owning a car is slipping. Ride hailing apps like Uber are pushing car ownership lower. And autonomous cars might push ownership even lower by making Uber more cost-effective. Automation will eliminate one of the most expensive components - drivers.
There's new downward pressure, but even without it, Ford has a rocky track record with paying dividends. It suspended its payout in 2006. Since then, Ford is paying a dividend again, but another dividend cut might be around the corner.
Ford's financial situation doesn't look promising. Similar to AT&T, Ford also has a lot of debt, but its new challenges will lower cash flow to pay off the debt and maintain the dividend. This isn't a great sign for investors.
Final Thoughts
Both companies above are household names, but AT&T looks like a better bet for income investors. Ford is losing market share and has a rocky track record with paying dividends. Smart investors look for blue-chip dividend stocks that will remain strong.
Dividend stocks are a great portfolio builder, but don't expect huge gains in any given year. If you're looking for higher-reward opportunities, check out some of the top penny stocks. There's more risk, but the right penny stocks can more than double your money in a short time frame.