Special Free Report From The Motley Fool

Revealed: The Motley Fool’s Top 3 Blue Chips Stocks For 2020

Thanks for taking the time to access my report. My name’s Ed Vesely and I’m the lead Advisor of a service called Motley Fool Dividend Investor.

Very soon, you’ll receive your first issue of Take Stock. It’s full of vital information and investment ideas that I believe will help you grow, and when necessary, protect your wealth. I recommend you give it a good read. It’ll only take you a few minutes to read each issue, but it could prove to drastically change your financial future.

Now, let’s get to my Top 3 Blue-Chip Stocks for 2020. Blue-chip stocks should form the bedrock of any well-constructed portfolio. But being a household name doesn’t automatically qualify a company as a good investment.

It’s important to focus on dominant businesses, with strong competitive advantages. Large enterprises with these characteristics are usually more profitable and more stable than lower-quality corporate peers.

These companies operate deeply entrenched businesses, and offer investors a fully franked dividend yield with significant growth potential.

Wesfarmers (ASX:WES)

Making Customers Happy

Company snapshot

Market cap: $35.5 billion
Recent share price: $31.34 (as at 12th December 2018)
Cash/debt: $2.2b/$4.1b
P/E ratio: 13.6x
Dividend yield: 4.7% fully franked (approximately)

Wesfarmers was founded in 1914 as a Western Australian farmers’ cooperative, dealing in many segments including; wool, livestock, skin and produce auctioning, grain and fruit export, insurance underwriting, and country distribution for Commonwealth Oil Refineries Ltd (part of today’s BP). One hundred years on, the modern-day Wesfarmers has been through much change — but in the process has grown to be one of Australia’s largest listed companies.

Wesfarmers is well diversified across a variety of different retail chains, many of which are continuing to show strong growth such as Bunnings, Officeworks and Kmart.

Recent Demerger

In the last few months Wesfarmers has gone through a significant restructure with its decision to demerge Coles. Wesfarmers took this decision after forming the view that it will help it divert investment and management focus away from the supermarket company and towards its higher growth/more profitable businesses. We are inclined to agree. Over the last few years, Coles’ revenue has barely budged whilst its archrival, Woolworths (ASX:WOW), hasn’t had the same issues indicating that it has successfully been winning market share. A clean break between the two means that Wesfarmers can focus on getting the best out of the likes of Bunnings and Kmart (which are, arguably, two of the best retail businesses in the country) whilst Coles can focus solely on kickstarting momentum at the supermarket.

Post demerger, Wesfarmers has retained a healthy balance sheet which can allow the company to make further acquisitions

Foolish Bottom Line

An investment in Wesfarmers gets you access to a portfolio of high quality companies — including some of the country’s most dominant retailers — and with some of Australia’s most accomplished capital allocators at the helm, with a Fool-like long-term focus.

Seek (ASX:SEK)

From Humble Beginnings

Company snapshot

Market cap: $6.1 billion
Recent share price: $17.47 (as at 12 Dec 2018)
Cash/debt: $362m/$1.4billion
P/E ratio: 27x (adjusted for one-time events)
Dividend yield: 2.6% fully franked

Seek (ASX:SEK) should be familiar to most Australians. Its website has long been the go-to place for Aussies looking to make a change in their career.

Since forging a dominant position in local markets, Seek has continued to spread its tentacles around the world, and it now operates businesses throughout Asia as well as Brazil and Mexico. It also has a burgeoning venture capital business where the company invests in start-ups in the hope that they become the Seeks of tomorrow.

Getting the job done

Despite volatility in the unemployment rate over the years, Seek Australia has generated annualized revenue growth of approximately 25% per year for over 13 years with forecasted revenue growth for 2019 between 16-20%. Seek also accounts for approximately 36% of placements in Australia, approximately 7 times its nearest competitor, which just goes to show how strong the company’s position is in the local employment market. Despite the success, Seek is remaining proactive and is actively seeking to “strengthen its moat” — which we like to hear. Over the years, it has invested a lot of money into its local business to ward off threats such as that posed by LinkedIn.

International opportunity

Although Seek Asia has the highest profit margins, its Chinese business, Zhaopin, has been the company’s biggest growth driver, with revenue of $461 million in the most recent fiscal year. Zhaopin grew online revenue 18% in its most recent quarter, and 21% in the most recent half-year.

Like its Australian counterpart, Seek has been investing heavily in marketing and product development for Zhaopin which has led to operating profit growth far below its rapid revenue growth. However, this should once again lead to the continuation of strong results in the future. As such, spending is based on management discretion, which also means that when the time is right, the company should be able to pull back and watch its profitability start to rise.

Foolish Bottom Line

Seek remains the undisputed leader when it comes to advertising jobs online. Like REA Group (ASX:REA) in the real estate market and Carsales (ASX:CAR) in vehicles, it attracts the most visits from job hunters which also makes it a must-use portal for companies and recruitment firms alike. This network effect continues to generate great returns in Australia and its international businesses, creating plenty of avenues for future growth. All in all, a promising prospect!

Challenger (ASX:CGF)

Fishing in the Superannuation Ocean

Company snapshot

Market cap: $6.0 billion
Recent share price: $9.5 (as at 12 Dec. 2018)
Cash/debt: $839m /$6.7b
P/E ratio: 18x
Dividend yield: 3.7% fully franked

At an estimated $2.6 trillion, Australia’s retirement savings pool is the fourth largest in the world, and trails only the United States, Japan and Britain. While our savings pool is large on a per capita basis, we still need to save and grow our nest eggs in anticipation of retirement. Once in retirement, many among us intend to draw an income stream from our savings. Challenger addresses these two basic necessities.

A Business Full of “Life”

When you hear “Life,” it’s easy to think of a traditional insurer selling life insurance, but in Challenger’s case, ‘Life’ is all about providing so-called annuity products — policies offering regular income payments in the future in exchange for a lump sum upfront — to people who want to remove the discomfort and anxiety presented by market volatility.

Thus far, results suggest that Challenger’s annuity solutions are a big hit. Challenger has grown annuities sales at a compound rate of 17% per year over the past five years.

A Bag Full of Funds

The other major part of Challenger’s business is its Funds Management business. In the company’s words this business “generally targets the retirement savings phase of superannuation by providing investment products aiming to deliver superior returns in order to maximise superannuation savings.”

In the recently reported annual result, the Funds business grew to $81 billion in assets under management (AUM), up from $70 billion in 2017. According to Challenger, net inflows have consistently outperformed its peers. Not bad!

Foolish Bottom Line

Challenger has recreated the success of an investment vehicle that for a long time belonged to the 1950s and 1960s insurance salesmen. In doing so, it has captured a large share of a growing and profitable market. At the same time, the company has capably addressed the other ‘side’ of the cycle by beefing up its funds management business. The Australian superannuation pool is growing at twice the pace of the global pension system, averaging around 10% growth per year. Add ageing population and increasing longevity into the mix, and we believe Challenger, as the leader in the annuities market, is very well placed to benefit from this tailwind.

When to Buy And When to Sell

I believe the three stocks above are some of the best buys available on the ASX today…

But there are, in fact, five dividend stocks on the market that I believe are hands down THE stocks to have in your portfolio right now. I think this select group of stocks not only trade on attractive dividend yields (often fully franked) but also offer the very real potential of significant capital gains.

As you’ll discover below, the share price of one of my previous “Best Buy Dividend Stocks” soared over 130% higher before I recommended the followers of my advice sell up to lock in their profits.

There’s an old saying that timing is everything – I’m talking about knowing which shares to buy right now, and when is the right time to sell. My list of “5 Best Buy Dividend Stocks” removes all the guesswork, as does my timely sell advice.

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Yours Sincerely,

Ed Vesely
Lead Advisor, Motley Fool Dividend Investor


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Ed Vesely does not own any of the shares listed. As at 12th December 2018, unless otherwise noted. The Motley Fool Australia owns shares of Altium, Challenger Limited, Event Hospitality & Entertainment, and Wesfarmers Limited. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips. For more information about The Motley Fool see our Financial Services Guide. All returns cited are hypothetical and based on the percentage change between the stock price at the time of recommendation and the current or sell price (if the position has been closed) at the time of publication. Brokerage, taxes and any other associated costs are not taken into account. Please remember that investments can go up and down. Past performance is not necessarily indicative of future returns. Performance figures are not intended to be a forecast and The Motley Fool does not guarantee the performance of, or returns on any investment. Any money back guarantee is strictly limited to the subscription price paid for the product.