3 blue chips that are odds-on winners

The S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) is up just 2.3% since the start of this year – hardly exciting for many investors. The problem for many is that the large top 20 blue chips are struggling for top-line revenue growth.

That could mean that a portfolio of cheap blue chips might outperform the benchmark over the next few years.

Markets have become becalmed too, with the US economy not growing as fast as expected – which has the bonus effect of US interest rates being on hold for longer.

Put the odds in your favour

And if markets aren’t going anywhere fast, cheap blue chips paying regular, consistent dividends might just be the ticket. Investing has much to do with putting the odds in your favour. If the market falls, buying and holding positions in cheap, high-yielding blue chips might be the best way of playing the probabilities.

It might require some courage and the ability to ignore short-term market plunges though – not to mention buying some stocks that the market dislikes a lot.

Here are 3 ideas….

Woolworths Limited (ASX: WOW)

There are early signs that Woolworths’ problems may have peaked, with same-store sales at its supermarkets division up in the early part of the 2017 financial year. At the current price of $22.86, Woolworths shares have recovered somewhat from a 10-year low of $20.30 but are almost half of their 10-year high of $38.92. Add in a fully-franked 3.4% dividend yield and there’s an opportunity for investors.

Retail Food Group Ltd (ASX: RFG)

The master franchisor for several diversified brands is expanding rapidly offshore and has a growing coffee roasting business. Capital light, a trailing P/E of 18.2x, a dividend yield of 3.8% and strong earnings growth ahead make Retail Food an odds-on winner. That P/E might appear high – but for a quality company generating double-digit growth, it’s not.

Premier Investments Limited (ASX: PMV)

The owner of Smiggle and Peter Alexander is also expanding rapidly offshore and recently reported strong earnings growth of 17.3% over the prior year. With a trailing P/E ratio of 17.3x, a rock-solid balance sheet and a 3% dividend yield, Premier is another blue chip to add to your watchlist.

Discover the 'new breed' of blue chips that could take your portfolio higher in 2016

Forget BHP and Woodside. These 3 "new breed" top blue chips for 2016 pay fully franked dividends and offer the very real prospect of significant capital appreciation. Click here to learn more.

The report is free! No credit card required.

Motley Fool writer/analyst Mike King owns shares in Woolworths. You can follow Mike on Twitter @TMFKinga

The Motley Fool Australia has a position in Retail Food Group. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.