For new investors who are just starting out and who may be overwhelmed with stocks to choose from, a good approach is to add some blue chip dividend stocks to your portfolio. Not only will that result in some solid dividend income, it'll also help you avoid taking on too much risk while getting more familiar with the markets. Below are three great choices for investors that will give them plenty of portfolio diversification.
AT&T (NYSE: T) is a solid household name that investors won't need much of an introduction to. The telecom giant is one of the largest companies in the world with a market cap of around $260 billion. While its returns over the past five years may be a bit unimpressive, the stock is up a very modest 1% and its the dividend offers stability that novice investors will want to pay close attention to.
The company has averaged a beta of about 0.8, which tells investors that the stock doesn't go on wild swings and is often less extreme than the market. When it comes to a quality dividend stock, consistency is very valuable since investors are likely investing for the dividend income, with any capital appreciation being an added bonus. However, that doesn't mean the stock won't be able to generate growth, as there are still some great opportunities for AT&T to continue growing its business in the near future, especially with 5G being close by. Currently, the stock offers investors a great yield of 5.8%.
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2. Bank of America
Bank of America (NYSE: BAC) is similar in size to AT&T, with a market cap of approximately $250 billion. Bank stocks are always good, default options for investors that might otherwise not be sure what to put into their portfolios. It's also hard to go wrong with a company that generates an incredible profit margin of more than 32%. The bank stock pays a bit more of a modest dividend than AT&T does at just 2.7%, but with a small payout ratio of only 21%, it's a very stable dividend and one that has the potential to grow over time.
As an added bonus, for investors who buy Bank of America today, they'll be getting a pretty good price for the stock as it is trading right around its book value and less than 10 times its earnings. The stock has struggled recently, but year to date it is still up by more than 10%.
Apple (NASDAQ: AAPL) gives investors a third industry to add to their portfolio, and it's also hard to pick a much better stock. While the company may not be the rapidly growing company it once was, it still has a loyal customer base that it can count on for a lot of recurring revenue. Apple has become a much more mature company over the years and investors are now able to earn a modest dividend of 1.4% as well.
The payout itself may not be large, but when you factor in that the company buys back a lot of its shares, investors are able to benefit from a rising stock price as well. Year to date, Apple's stock has risen by more than 34% and yet it still trades at a price-to-earnings of only 18. Although Apple may have slowed down in recent years, with so much cash on its books, the company has a plethora of options as to what it could do next to help drive its value up even more.
It's easy for new investors to get overwhelmed by the many options to choose from in the market, but these three companies will pay off in the long run thanks to their healthy and growing dividends.
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David Jagielski has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: short January 2020 $155 calls on Apple, long January 2020 $150 calls on Apple, short January 2020 $155 calls on Apple, and long January 2020 $150 calls on Apple. The Motley Fool has a disclosure policy.
This article was originally published on Fool.com