With interest rates at record lows, investors have been turning their attention away from term deposits and into high-yielding blue chips. Unfortunately our dividend boom has made it harder for new investors to grab quality companies at decent prices. Paying the right price for a company is a crucial consideration for investors. A blue chip that may seem lower risk, may in fact add more downside risk to your portfolio because of its overvalued nature.
So here are three blue chips that I've identified as potential candidates for a buy and hold strategy. I think these companies trade on attractive valuations given their exciting long-term growth prospects and tasty dividend yields.
Sydney Airport Limited (ASX: SYD) has a great track record of providing capital growth, putting a smile on its shareholders' faces. Operating in Australia's largest city and premier tourist destination, Sydney Airport has no shortage of customers which creates a sticky revenue base. Furthermore, passenger volumes are growing at a modest rate each year and our weaker Australian dollar will attract more tourism.
With a guaranteed capacity to cater for all of its air traffic until 2033, Sydney Airport seems to be a decent buy, particularly when you factor in its tasty 5.4% dividend yield.
2. Australia's favourite retailer Woolworths Limited (ASX: WOW) is the owner of popular brands such as BIGW, Home Improvement stores and the Woolworths supermarket chain. Woolworths is one of my favourite blue chips given the sheer size of its business. Its large scale operations mean that it's extremely hard to steal market share away from it. Furthermore, discount stores such as BIGW give Woolworths a countercyclical advantage, meaning that demand for its products is likely to be strong even in an economic downturn.
Like Sydney Airport, Woolworths has a multitude of competitive advantages. It sits on a modest price-to-earnings ratio of 17 and offers a fully franked dividend yield of 4%. Woolworths is definitely a stock to hold onto forever!
3. Coca-Cola Amatil Ltd (ASX: CCL) may have the market capitalisation of a blue-chip company, but its unstable earnings in the past few years suggests something different. However, it's important to appreciate Coca-Cola's excellent underlying brand reputation. In addition, Coca-Cola's management has been working non-stop to restructure its existing functions and improve overall efficiencies. Although its restructuring endeavours are yet to materialise, I am confident that they will start to "kick in" over the next few years. Coca-Cola trades on a modest price-to-earnings ratio of 16 and offers a 5.4% dividend yield.
I think Coca-Cola is a perfect candidate for a turnaround success story.
