Investing in blue-chip stocks can provide a great income stream and modest capital gains over the long term. Unfortunately, many of biggest and best ASX-listed companies are expensive and the risk of falling share prices is very real.
The market's recent setback in September, where blue chips such as Woolworths Limited (ASX: WOW) fell over 5%, should serve as a reminder that no stock is a buy at any price.
However the good news is we can still find great companies with generous dividend yields, trading at reasonable prices, if we search hard enough.
1. Macquarie Group Ltd's (ASX: MQG) share price may have risen over 6% in the past year but the company still has plenty to offer. With a growing mortgage portfolio, rising earnings from Asia and North America as well as a hefty 4.5% dividend yield, there's reason to believe it could trend higher in the near future.
2. Australia's premier beverage distributor Coca-Cola Amatil Ltd (ASX: CCL) has been hit hard in the past year, with shares down 21%. The company has struggled with increased competition from international rivals and a price war between Coles and Woolworths. However, with a recent operational review now complete, in the long term it's likely that CCA's current price will prove undemanding.
3. Fortescue Metals Group Limited (ASX: FMG) is Australia's third largest iron ore miner. At $3.16 per share, Fortescue appears to be extremely cheap, trading on a price-earnings ratio of 4.4 and trailing dividend yield of 5% fully franked. However its shares have dropped 45% this year as a result of a plummeting iron ore spot price. With an estimated breakeven price of around $US70 per tonne and high quality iron ore fetching just $US76 per tonne last week, it'd be a brave investor to hit the buy button on Fortescue shares today.
4. ResMed Inc. (CHESS) (ASX: RMD) is an innovative Australian healthcare business specialising in the manufacture of devices for sufferers of sleep apnoea and other respiratory disorders. Despite its share price appreciating 11% in 2014, the long-term demand for its products is rising strongly, which means now could be a great time to buy and hold the stock.
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I'm steering clear of Fortescue for obvious reasons at today's prices, I think Coca-Cola Amatil is a best buy of the four stocks. However, with long-term growth opportunities and numerous competitive advantages, both Macquarie and ResMed shareholders can look forward to a more profitable future.
