Blue-chip stocks are the large-cap stocks that investors would love to have a pile of in their portfolios because they pay handsome dividends and have a strong track record of growth.
If you are looking for long-term income, you want to make sure it is steady and growing. That’s what these two blue-chips have to offer. As market leaders, they will keep on going well into the future. Right now, though, both have experienced some setbacks, so the market has cooled on them. When the market lowers its interest, then you should raise yours.
BHP Billiton Limited (ASX: BHP), the $116 billion mining company, has been cutting costs and jobs while it continues to talk up the long-term strength in iron ore demand. Its PE is 12 and it offers a 3.5% dividend yield.
The company’s plan to sell down non-core assets outside of iron ore, copper, petroleum and coal will be good for its long-term financial strength, but the market is focusing on the immediate future.
This is where you have to be a little contrarian in your thinking. If you are going to buy a cyclical stock, then it is best to do it well before that industry becomes hot again. BHP is a quality blue-chip stock that has gone through a number of mining booms and busts and is still here, tripling its share price in the last ten years.
AGL Energy Ltd (ASX: AGK), energy producer and electricity utility retailer, has a 4.1% dividend yield and a 15 PE ratio. Currently, it wants to acquire the power generating utility company Macquarie Generation, which is a NSW state-owned asset up for sale. MacGen generates about 13% of the electricity needed in eastern Australia.
The ACCC has blocked the sale under concerns the acquisition would give too much pricing power and industry consolidation to AGL Energy. The company is already one of the biggest electricity providers in the eastern states.
Creating new utility assets on such a scale would be prohibitively expensive. If AGL can win its appeal on the ACCC’s decision, it would be a great plus for long-term growth and earnings.