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The Gist

The stocks covered in this article are Dow Jones Industrial Average (NYSEARCA:DIA) large cap or better stocks. These stocks are considered blue chips. A blue chip is a stock in a corporation with a national reputation for quality, reliability and the ability to operate profitably in good times and bad. Typically they pay dividends and are less volatile than the market. With the markets at all-time highs, it may be prudent to rotate a percentage of your portfolio out of higher beta stocks.

There may be an uptick in volatility in front of us with the markets at all-time highs and another Washington showdown on the horizon. This may be an ideal time to take some profits on your high beta winners and rotate into these high-yield blue chip dividend-paying opportunities.

The Goods

In the following sections, we will perform a review of the fundamental and technical state of each company to determine if this is the right time to start a position. The following table depicts summary statistics and Thursday's performance for the stocks.

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Intel Corporation (INTC)

Intel pays a dividend with a yield of 4.24%. The company is trading 25% below its 52-week high and has 8% upside potential based on the consensus mean target price of $22.88 for the company. Intel was trading Thursday for $21.26, flat for the day.

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Fundamental Review

Fundamentally, Intel has some positives. The company has a forward P/E of 10.22. The company has a net profit margin of 20.63%. The company is trading for slightly over two times book value and has a PEG ratio of .85.

Technical Review

Technically, the stock is in a long-term downtrend, yet has rallied back recently after missing earnings on January 17th. You can read the transcript here. Intel has a beta of 1.

My Take

Intel has taken a beating recently due to the waning demand for PCs. Nevertheless, I wouldn't count them out. Intel has the wherewithal to transition into the new age of tech. I posit the bad news is priced in and the weak hands have been shaken out at this point. The stock is a buy at the level. The risk/reward favors long trades.

Merck & Co. Inc. (MRK)

Merck pays a dividend with a yield of 4.18%. The company is trading 13% below its 52-week high and has 18% upside potential based on the consensus mean target price of $48.57 for the company. Merck was trading Thursday for $41.18, flat for the day.

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Fundamental Review

Fundamentally, Merck has some positives. The company has a forward P/E of 10.86. The company has a net profit margin of 14.37%. The company is trading for slightly over two times book value.

Technical Review

Technically, the stock is poised to breakout one way or the other. The stock is currently trading at the apex of a descending triangle formation. The stock has a beta of .58.

My Take

Merck reported earnings on February 1st. Merck forecasts adjusted EPS of $0.76-$0.78 for the first quarter of 2013, below estimates of $0.86. The guidance included the impact of Venezuela's 33% devaluation. I see this as a short-term development. The drop in the stock presents a long-term buying opportunity. Aging baby boomers should be a significant catalyst going forward as they will inevitably require more medical attention. The stock is a buy here. If you want to reduce risk wait until the stock breaks out prior to starting a position.

Pfizer Inc. (PFE)

Pfizer pays a dividend with a yield of 3.56%. The company is trading 3% below its 52-week high and has 9% upside potential based on the consensus mean target price of $29.51 for the company. Pfizer was trading Thursday for $29.06, flat for the day.

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Fundamental Review

Fundamentally, Pfizer has some positives. The company has a forward P/E of 11.44. The company has a net profit margin of 16.14%. The company is trading for two and a half times book value and EPS is up 10% quarter over quarter.

Technical Review

Technically, the stock looks great. It is in a solid uptrend. With an RSI of 56, it is neither overbought nor oversold. The stock has a beta of .74.

My Take

Pfizer is in the same boat as Merck. The aging baby boomers population should be a significant catalyst going forward. The stock is a buy here. If you want to reduce risk wait until the stock touches and bounces off the 50-day SMA for confirmation of support.

AT&T, Inc. (T)

AT&T pays a dividend with a yield of 5.08%. The company is trading 7% below its 52-week high and has percent upside potential based on the consensus mean target price of $36.46 for the company. AT&T was trading Thursday for $35.29, down nearly 1% for the day.

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Fundamental Review

Fundamentally, AT&T has some positives. The company has a forward P/E of 13.12. The company has a net profit margin of 5.92%. The company is trading for slightly over two times book value and 21 times free cash flow.

Technical Review

Technically, the stock has just breached long-term resistance. The stock has bounced off the $33 level three times recently. It looks like the bottom is in. The stock has a beta of .52 and an RSI of 60.

My Take

AT&T reported earnings on January 24th. Fiscal fourth quarter 2012 profits were lower than expected but the telephone company stated earnings and revenue would grow this year even if the economy does not improve. You can read the transcript here.

The average mobile user used 201 megabytes of data per month in 2012, more than twice the 92 megabytes per month consumed in 2011, according to this year's update to Cisco's (NASDAQ:CSCO) Visual Networking Index. Cisco predicts mobile data traffic will post a 66% CAGR from 2012 to 2017. This bodes well for AT&T. The stock is a buy at the level.

Verizon Communications Inc. (VZ)

Verizon pays a dividend with a yield of approximately 4.63%. The company is trading 7% below its 52-week high and has 7% upside potential based on the consensus mean target price of $47.22 for the company. Verizon was trading Thursday for $44.33, down slightly for the day.

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Fundamental Review

Fundamentally, Verizon has some positives. The company has a forward P/E of 14.18. The company has a net profit margin of 9.11%. The company is trading for 20 times free cash flow.

Technical Review

Technically, Verizon has just broken through long-term resistance. The stock has been hugging the 200 day SMA. The stock looks technically bullish with a beta of .46 and an RSI of 57.

My Take

Verizon is well positioned for the telecom revolution. With the proliferation of mobile devices discussed in the AT&T section above, Verizon stands to grow profits substantially. The stock just broke out above long-term resistance. The risk/reward is favorable at this level.

The Bottom Line

These dividend-paying stocks have the potential for both capital gains and income production. Boomers will be looking for stocks that have a track record of increasing dividends. This will give them yet another hedge against inflation. This combination of capital gains and income production will be necessary to fund the lengthening retirement that comes with a greater life expectancy.

These stocks have solid long-term growth stories and pay hefty dividends. These facts coupled with the Fed's announcement that the QE program will continue leads me to believe these stocks are set for more upside. Factor this in with the statistic that historically dividend-paying stocks have outperformed non-dividend-paying stocks and you have a recipe for outstanding returns.

We are talking about buying and holding these stocks for the long haul. Since these will be long-term core portfolio holdings, take your time and build your full position slowly. If you choose to start a position in any stock, I suggest layering in a quarter at a time at a minimum to reduce risk.

Source: 5 High-Yield Blue Chips To Buy With Solid Upside Potential

Additional disclosure: This is not an endorsement to buy or sell securities. Investing in securities carries with it very high risks. The information contained within this article for informational purposes only and is subject to change at any time. Do your own due diligence and consult with a licensed professional before making any investment.