Top 5 Blue Chip Stocks With Dividends in 2023

Large and conservatively run financial institution.

Bank of America (BofA) is a global household name when it comes to providing financial services. Those services include everything from the Consumer Banking Team, Global Commercial Banking, Enterprise Credit, Global Corporate & Investment Banking, and Merrill Wealth Management to various other solutions for institutional and private customers

The bank also engages in Sustainable Finance & Research – committing US$1.5tn to sustainable finance strategies.

BofA was not built in a day. It reached its status over many decades, having a reputation as one of the more conservatively run but well-managed banks.

Although banks can benefit from higher interest rates, a threat of recession can worsen their position since rising defaults might deteriorate the situation. Yet, they seem to have been preparing, raising the credit provisions in recent months.

Still, BofA has fared better in recessions than many other financial institutions. For example, in the Great Recession, it acquired Merril Lynch, whose wealth management business turned out to be a big winner, creating outstanding returns on equity.

The recent collapse of Silicon Valley Bank saw the banking sector thrust into the spotlight, with many banking stocks enduring a sharp share price decline as investors sought to exit their positions - particularly from niche or regional banks. BofA didn’t manage to escape the carnage, with the share price falling as much as 20% across the March Banking Crisis, but the long term impacts could see more deposits heading BofA’s way as people seek safety in conservatively run financial institutions.

Finally, the bank’s dividend has been resilient and growing over the years. The dividend payment has significantly increased from US$0.04 per year in 2013 to the most recent level of US$0.88 per year.

A tech innovator with a lean business model.

Broadcom Inc. is a technology company that designs, develops, and supplies category-leading semiconductor and infrastructure software solutions.

The company has a rich heritage originating from AT&T/Bell Labs, Lucent, and Hewlett-Packard/Agilent. Its decades of innovation started as early as the 1960s when the company introduced the first commercially available light-emitting diode (LED) displays.

Currently, it operates through 2 segments: Semiconductor Solutions and Infrastructure Software. The key clients include companies like Apple, Hewlett-Packard, IBM, Dell, and many other blue-chip tech companies.

Broadcom keeps operating a rather lean model, looking to sell to customers that use rather than shelf their products. A lean operation ensures they don’t get stuck with lots of unsold inventory if the demand dries up. While this approach requires an excellent supply chain, logistics problems that impacted many industries through 2021 and 2022 didn’t bother Broadcom. Instead, semiconductor revenue growth accelerated, exceeding US$7b in Q4 ’22 compared to US$5.5b in Q4 ’21.

Broadcom pays a notable dividend that is well above the industry average. It has been stable and quickly growing over the past decade – from US$0.68 per year in 2013 to the latest payment of US$18.4 per year. The company maintains a reasonable payout ratio to ensure this growth remains sustainable.

A global financial powerhouse with a robust insurance business and consistent dividend growth.

Allianz Group is one of the leading global financial services providers, with over 125 million customers in more than 70 countries.

Since its founding in 1890 in Munich, Allianz grew into a number 1 international insurer, with 150,000 employees and over US$11b in operating income. Its asset management business manages over US$2tn in customers’ assets, making it one of the largest in the world.

The company operates through 3 segments: property-casualty insurance, life-health insurance, and asset management products and services.

Insurance is a timeless business, as private and institutional clients purchase and renew protection for their key assets and their health. While many insurance companies operate on rather thin margins (as low as 2-3%), Allianz has a net profit margin of 4.06%, despite its scale of operations.

Furthermore, since the Great Recession, Allianz has had a CAGR dividend increase of 9%, growing from €4.5 per year to €10.8 per year in the last 10 years alone. The company has the plan to keep the dividend growth stable. Its payment ratios might look high, but not out of line for a stable, well-managed insurance business leader.

A diversified Canadian bank with strong international presence and impressive dividend history.

The Bank of Nova Scotia (Scotiabank) is a Canadian bank operating primarily on the domestic market but also internationally, particularly in South America. About 40% of its revenue comes from abroad, making it the most internationally-oriented Canadian bank.

It is also one of the oldest domestic banks, operating through 4 segments: Canadian Banking, International Banking, Global Wealth Management, and Global Banking and Markets.

A high barrier of entry protects its domestic market share. At the same time, a diversified revenue stream allows it to weather the economic downturns by shifting focus to areas with opportunities like emerging markets. Although exposure to these markets comes with higher political risks, the domestic market has its risks. Fiscal tightening is a severe risk to the troubled Canadian housing market, with other domestic banks having a much higher exposure to those loans.

Only some companies can compete with Scotiabank’s dividend history. It has been paying an uninterrupted dividend for 189 years, demonstrating incredible resilience. Yet, its dividend is yielding above the industry average with a well-covered payout of 50%. The growth is expected to continue at a predictable scale of 5-6% annually.

Poised for growth in the new commodity super-cycle.

Caterpillar Inc. is a leading construction, transportation, and energy equipment manufacturer. It manufactures and sells construction and mining equipment, diesel and natural gas engines, and industrial gas turbines.

The company operates globally through 3 primary segments – Construction Industries, Resource Industries, and Energy & Transportation.

With significant policy pushes for sustainable energy development, trends in the 2020s point to commodity shortages and mining underinvestment that might require massive capital investments. Electric vehicle production is just one of the examples, with annual copper demand expected to grow by over 50% within the next 2 decades.

Meanwhile, the capital expenditures of commodity producers have been shrinking since 2015 and won’t meet the incoming demand at those levels. Therefore, Caterpillar is well-positioned to be a key supplier in a new commodity super-cycle, growing with the unprecedented incoming demand for commodities.

Furthermore, Caterpillar has an excellent dividend track record – paying a quarterly dividend since 1933. Its dividend is slightly above the industry’s average but has been steadily growing from US$2.08 per year in 2012 to the latest US$4.80 per year payment.