The 5 Best Blue Chip Dividend Stocks to Buy Now

In early 2022, we tried an experiment to see how the best blue chip dividend stocks yielding at least 2% would perform in a rapidly deteriorating market.  

The idea was that the best blue chip dividend stocks never go out of style, and that they would give income investors both a shot at outperformance and some much needed peace of mind. 

Indeed they did. As the market went on to notch an historically bad year for equities, the best blue chip dividend stocks collectively generated positive returns – and then some. And they continue to outperform, by a very wide margin, to this day.

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As you can see in the chart below, a market-cap weighted index of analysts' five top-rated dividend stocks in the Dow Jones Industrial Average yielding at least 2% as of Feb. 14, 2022 – Chevron (CVX), Coca-Cola (KO), Johnson & Johnson (JNJ), McDonald's (MCD) and Merck (MRK) – delivered a total return (price change plus dividends) of more than 19% through April 28, 2023.

By comparison, the S&P 500 generated a total return of -3.3% over the same time period.

We repeated the experiment in October, but this time looking for analysts' top-rated Dow stocks with dividend yields of at least 2.5%. (Rapidly rising interest rates – and the fact that the dividend yield on the Dow had vaulted to 2.3% from 1.8% a year ago – prompted us to screen for stocks with more attractive yields.)

As you can see in the chart below, this index – comprising Chevron, Goldman Sachs (GS), Merck, Coca-Cola and Home Depot (HD) – also beat the broader market, albeit by a much narrower margin. From October 5 through April 28, our second pass at the best blue chip dividend stocks returned 14%, vs 11.3% for the S&P 500.

The narrowing of the performance gap can be explained by the market's renewed appetite for risk in early 2023. The anticipated end of the Federal Reserve's campaign of interest rate hikes helped the S&P 500 rise almost 9% on a price basis through the first four months of the year.

The end of the Fed's most hawkish bout of monetary policy in 40 years should theoretically continue to be bullish for riskier stocks. By the same token, it should be bad for the best blue chip dividend stocks, which are more defensive by comparison.

But the outlook for both the economy and equities as we approach the second half of 2023 continues to support the case for the best blue chip dividend stocks. For one thing, economists put the odds of the U.S. economy entering a recession sometime in the next 12 months as high as 65%.

Secondly, surveys show that investors are increasingly leaning toward defensive stocks as the economic outlook deteriorates. Nearly 45% of investors polled for a recent Bloomberg MLIV Pulse survey said they were buying defensive stocks in preparation for a looming slowdown. 

It's also the case that the best blue chip dividend stocks – especially those delivering reliable dividend growth – have good track records regardless of which way the broader market turns.

"Investing in companies with sustainable dividend growth can help augment total returns and reduce volatility while providing a growing income stream," write David Park and David Chalupnik, portfolio manager and head of U.S. active equities portfolio management, respectively, at Nuveen. "Dividend growth oriented companies have historically participated in up markets and helped to mitigate risk during periods of heightened volatility and market drawdowns."

The best blue chip dividend stocks

Given how well our original five best Dow dividend stocks have performed – and the increasingly opaque outlook for the remainder of 2023 and beyond – we decided to repeat our experiment once again.

Here's how we found the best blue chip dividend stocks to buy now. Using data from S&P Global Market Intelligence, we screened the Dow Jones Industrial Average for Wall Street analysts' highest-rated blue chip dividend stocks with dividend yields of at least 2.0%. We also required our candidates to have long track records of annual dividend increases.

A quick note on S&P Global Market Intelligence's ratings system: S&P surveys analysts' stock recommendations and scores them on a five-point scale, where 1.0 equals a Strong Buy and 5.0 is a Strong Sell. Any score equal to or below 2.5 means that analysts, on average, rate the stock at Buy. The closer a score gets to 1.0, the stronger the consensus Buy recommendation.

This process led us to the following five blue chip dividend stocks, which we list below by strength of analysts' consensus recommendations, from lowest to highest conviction. (Market data and analysts' ratings are as of May 1.)

 5. Home Depot

• Market value: $301.4 billion
• Dividend yield: 2.8%
• Analysts' consensus recommendation: 1.97 (Buy)

No one can quibble with Home Depot (HD) stock as a buy-and-hold outperformer. The nation's largest home improvement retail chain lays claim to having one of the 30 best stocks of the past 30 years, generating an annualized dollar weighted return of nearly 17% between 1990 and 2020. 

And while HD stock might be off to a slow start in 2023, analysts say it's poised to deliver market-beating returns in the year ahead. 

Shares were off nearly 6% for the year-to-date through May 1, lagging the broader market by 14 percentage points. If the bulls are right, however, HD will outperform the benchmark index in the year ahead.

Of the 36 analysts covering HD tracked by S&P Global Market Intelligence, 17 rate it at Strong Buy, four say Buy, 14 have it at Hold and one calls it a Sell. That works out to a consensus recommendation of Buy, with fairly high conviction. The Street's average target price of $329.19 gives HD implied price upside of 13% in the next 12 months or so. Add in the dividend yield, and the implied total return is closer to 16%.

Meanwhile, the slumping share price has made the valuation on HD stock too compelling to pass up, bulls say. On a forward earnings basis, HD trades at about the same multiple as the S&P 500 – despite having stronger earnings growth prospects.

"We think that HD shares are attractive near the market multiple," writes Argus Research analyst Christopher Graja, who rates the stock at Buy. "HD is a high-quality business, with substantial financial strength and impressive returns on capital. It is also showing the potential for continued market share gains."

Also appealing: HD has increased its dividend annually for 14 consecutive years.

4. Merck

• Market value: $295.0 billion
• Dividend yield: 2.5%
• Analysts' consensus recommendation: 1.89 (Buy)

Merck (MRK) stock was lagging the broader market by about 3 percentage points for the year-to-date through May 1, reflecting to some degree the market's shift toward growth names this year. Markedly slower sales of coronavirus treatments in the post-pandemic era are also having an impact on top-line results. 

Let's also not forget that MRK stock had an outstanding run in 2022. And shares are still up more than 30% on a price basis over the past 52 weeks, vs an essentially flat performance for the S&P 500. 

At any rate, the Street believes the stock's sluggish start to the year has it primed for outperformance over the next 12 months. Thirteen analysts rate MRK at Strong Buy, six call it a Buy, eight have it at Hold and one rates it at Sell. Their average price target of $122.81 gives shares implied price upside of just 6% in the next year or so. Add in the dividend yield, and the implied total return comes closer to 9%.

One critical overhang on Merck’s stock has been the company's reliance on blockbuster cancer drug Keytruda, which will lose patent exclusivity in 2028. But bulls contend Keytruda's future is more than baked into MRK's share price. They further argue that the market insufficiently values recent and potential acquisitions, and Merck's drug pipeline.

"The April acquisition of Prometheus Biosciences for approximately $10.8 billion bolsters Merck's immunology franchise and adds diversity to the company's pipeline," notes Lee Brown, global sector lead for healthcare at Third Bridge research. "We're following PRA023, Prometheus' leading drug candidate for ulcerative colitis and Crohn's disease."

Lastly, a dozen years of consecutive annual dividend increases confirms management's commitment to returning cash to shareholders. 

3. Procter & Gamble

• Market value: $369.3 billion
• Dividend yield: 2.4%
• Analysts' consensus recommendation: 1.85 (Buy)

Shares in Procter & Gamble (PG) are lagging the S&P 500 by about 5 percentage points so far this year, but Wall Street believes this leviathan of consumer staples stocks is primed to outperform the broader market from here on out.

Of the 26 analysts issuing ratings on PG tracked by S&P Global Market Intelligence, 13 call it a Strong Buy, five say Buy, seven have it at Hold and one slaps a rare Sell recommendation on the name. That works out to a consensus recommendation of Buy, with high conviction.

With an average price target of $164.39, the Street gives PG stock implied upside of only about 5% over the year. Add in the dividend yield, and the implied total return comes to around 8%. That sort of upside might not wow many investors, but then PG might not have to do much to outperform the S&P 500 if economists' most dire predictions come to pass. 

In addition to being a Warren Buffett stock pick, PG is among hedge funds' top blue chip stocks. It also happens to be one of the 30 best stocks of the past 30 years, generating an annualized dollar weighted return of 13.1% between 1990 and 2020. And at 66 years and counting, PG ranks as one of the best dividend stocks for dependable dividend growth. 

If nothing else, PG's fiscal third-quarter results, released in late April, demonstrated the pricing power of the company's portfolio of brands. The company hiked prices by 10%, and yet shoppers didn't balk at paying more for favorites such as Tide detergent, Crest toothpaste and Pampers diapers. 

"March quarter results demonstrated in our view PG's continued focus on innovation and investment, which allowed for sales and margin upside despite arguably a more volatile macro backdrop," noted Raymond James analyst Olivia Tong, who rates shares at Outperform (the equivalent of Buy).

2. Coca-Cola

• Market value: $278.8 billion
• Dividend yield: 2.9%
• Analysts' consensus recommendation: 1.82 (Buy)

When it comes to finding the best stocks for a bear market, few names in the defensive consumer staples sector can match Coca-Cola (KO).

KO was hit hard by pandemic lockdowns, which shuttered restaurants, bars, cinemas and other live venues. But those sales are now bounding back. Analysts likewise praise Coca-Cola's ability to offset input cost inflation with pricing power.

KO also happens to be one of Warren Buffett's favorite stocks, accounting for more than 8.5% of the Berkshire Hathaway portfolio. Analysts like it, too, giving it a consensus recommendation of Buy, with high conviction. Thirteen analysts rate KO at Strong Buy, eight say Buy, six call it a Hold and one has it at Sell. 

With an average price target of $69.17, the Street gives KO stock implied upside of 8% in the next year. Add in the dividend yield, and the implied total return comes to 11%. As a result, KO ranks high on the list of analysts' top Dow stocks. 

"Despite a host of challenges, we expect Coke to adapt to keep consumers engaged with the brand and its products as the company did in 2022," writes Argus Research analyst Chris Graja (Buy). "Coke is a stronger company than it was at the beginning of the pandemic. We expect the combination of more focused marketing and a more profitable brand portfolio to boost earnings and the share price over time."

KO stock was up 1% for the year-to-date through May 1 on a price basis, lagging the broader market by about 7 percentage points. However, shares have been a savior ever since the market peaked out early last year. Since Jan. 3, 2022, KO stock has generated a total return of 12%. The S&P 500's total return comes to -12.2% over the same span.

Lastly, KO's commitment to dividend growth is unquestionable. This blue chip dividend stock is a member of the S&P 500 Dividend Aristocrats, having hiked its payout annually for 61 straight years. 

1. McDonald's

• Market value: $217.4 billion
• Dividend yield: 2.1%
• Analysts' consensus recommendation: 1.75 (Buy)

McDonald's (MCD) gets top marks when it comes to analysts' best blue chip dividend stocks yielding at least 2%. Indeed, when looking at all Dow stocks ranked, MCD lands at No 6. 

The world's largest hamburger chain also happens to be a dividend stalwart. Changing consumer tastes will always be a risk, but McDonald's dividend dates back to 1976 and has gone up every year since. 

MCD stock was up nearly 14% on a price basis for the year-to-date through May 1, beating the broader market by about 5 percentage points. Going farther back, MCD stock has generated a total return of more than 14% since the market hit its all-time closing high at the beginning of 2022. The S&P 500's total return comes to -12% over the same time frame.

Analysts believe MCD stock can maintain its outperforming ways. This blue chip dividend stock is primed to serve investors well if the economy – and equities – soften in the second half of the year.

BMO Capital Markets, for example, praised the fast food chain's momentum following better-than-expected quarterly results released in late April. 

"And we expect MCD to sustain strong momentum and continue gaining market share, particularly in a softer consumer environment as it should be best positioned," wrote analyst Andrew Strelzik, who rates the stock at Outperform (Buy). 

Of the 36 analysts issuing opinions on MCD stock tracked by S&P Global Market Intelligence, 19 call it a Strong Buy, eight say Buy, eight have it at Hold and one rates it at Sell. That works out to a Buy recommendation, with high conviction. 

Meanwhile, with an average target price of $312.87, the Street gives MCD stock implied price upside of 6% in the next year or so. Add in the dividend yield, and the implied total return comes to roughly 8%.