Written by Amy Legate-Wolfe at The Motley Fool Canada
The TSX today remains a volatile place, with the market swinging up and down all year long. Investors are now worried about where they should be putting their cash! Especially when it comes to investing in a dividend stock.
That’s why today I’m going to focus on a blue-chip dividend stock. One that will allow you to continue seeing dividends come in, knowing full well you’ll see your shares climb in the near future.
What is a blue-chip stock?
A blue-chip stock actually refers to blue-chip companies. These are reputable brands that not only have built a large market capitalization, but have also maintained dominance in the market over many years and indeed decades. That’s an important point, as these blue-chip stocks will have also gone through multiple recessions and market downturns, making them a stable option.
What makes them so strong is that over the years these companies have established a profitable stream of income and become a well-recognized organization. They have a large market capitalization, a listing on major stock exchanges, and a long history of stable growth and dividends.
The downside here is that a blue-chip stock isn’t likely to see a surge in share price overnight. While it’s not unheard of, it’s not all that likely either. But again, that’s what usually makes them a safe choice.
Consider the sectors
There are many sectors that offer blue-chip dividend stocks on the TSX today. However, one of the best that I like is the Canadian banks. The banking institutions that make up this oligopoly have all been around for about 100 years, give or take. What’s more, they’ve grown immensely both in market cap and returns.
The bonus here is that of the small number of large banks, they’ve each created provisions for loan losses. This is quite helpful during market downturns. When loans drop, they can use those provisions to balance the books and get back in the black. So you can look forward to the company moving back to growth, even though they usually drop during market downturns.
And that’s another key here. Blue-chip dividend stocks like banks tend to drop during bear markets. However, that provides a chance to jump in for higher returns in the near term. Then, you can lock up stable returns in the years to come.
The blue-chip dividend stock I’d consider
A great option for investors to consider among blue-chip dividend stocks is Royal Bank of Canada (TSX:RY). Royal Bank stock has the largest market cap of the Big Six Banks and is tied for first in terms of assets under management. It has created a stable income stream thanks to its lucrative wealth and commercial management sector, providing stable growth over the years.
Yet right now, shares of Royal Bank stock are down 7% year to date. This provides a great opportunity for investors wanting in on the stock before it turns around. It trades at 11.8 times earnings, and could very well see an increase in the near future. This could come should the dividend stock achieve approval of its acquisition of HSBC.
For now, you can bring in a dividend yield of 4.45% as of writing, amounting to $5.40 per share annually. And as the market recovers, you can be sure the stock will come back, just as it has for the last several decades.
Before you consider Royal Bank of Canada, you'll want to hear this.
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