3 blue chips with big yields

Many experienced investors will have done very well out of buying blue chips two decades ago and simply holding those shares for the long-term. If they re-invested the dividends into buying more shares then they’d be sitting on a very nicely sized portfolio.

Creating good wealth doesn’t have to mean spending many hours researching a single share, or putting every stock through a 10-step screening process. It can simply be a case of buying quality blue chips like these:

Australian Foundation Investment Co. Ltd. (ASX: AFI) (AFIC)

One of the easiest ways to get exposure to the blue chips of Australia is to invest in AFIC. It’s a listed investment company (LIC) that invests in all the top blue chips and holds a similar portfolio to the index.

It’s been going since 1928, giving you the peace of mind about its longevity. It has maintained or increased its dividend every year over the past two decades. It’s a quality choice with a low management fee and comes with a grossed-up dividend yield of 5.6%.

The problem for me with AFIC is that it comes with several blue chips that aren’t generating much growth like the big banks. Indeed, the big banks represent the largest part of its portfolio.

It might be better to focus on blue chips that are still generating good growth.

Insurance Australia Group Ltd (ASX: IAG)

IAG grew cash earnings per share (EPS) by 33.4% in its recent half-year result, so it ticks the growth box. IAG is Australia’s largest insurer with its multi-brand approach including NRMA Insurance, CGU, SGIO, SGIC, Swann Insurance, WFI and Lumley Insurance.

Insurance is a vital part of everyone’s lives, making IAG somewhat of a defensive choice. It is also simplifying its business by selling off its Asian operations.

It currently has a grossed-up dividend yield of 5.75%.

Macquarie Group Ltd (ASX: MQG)

Macquarie is by far my favourite bank out of the regional and major bank shares on the ASX. In its recent full-year result it revealed that net profit was up 15%.

I like how Macquarie has tilted itself towards non-cyclical activities, which should mean it can get through the next recession a bit more easily. It calls the activities ‘annuity-style businesses’. My favourite segment is its infrastructure business, where it’s a world leader.

The world is going through an infrastructure boom. Australia, the US and Asia are all heavily investing to make their cities better places. Macquarie could be one of the ones to benefit most.

It’s currently trading with a partially franked dividend yield of 4.3%.

Foolish takeaway

All three shares could be quality, consistent income choices over the long-term. I’m a little unsure about IAG considering automated cars are predicted to greatly reduce insurance premiums over time.

At the current prices I’d probably pick Macquarie, although I’m waiting until another recession to pounce because its share price (and earnings) will likely be hurt more than some other shares, even though it has reduced how cyclical its earnings are.

Until Macquarie is trading cheaper, I’m looking closely at this market-leading income share that just grew its dividend by 25%.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Insurance Australia Group Limited. 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 Scott Phillips.

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