The Value Of Royal Blue Chip Stocks

Includes: PG
by: Rising Dividend Investing

How do you gain the benefits of investing in stocks while minimizing the inherent risk of investing? Enter Royal Blue chip stocks.

Royal Blue chip stocks are one of the pillars of our Cornerstone portfolio. They are the AA and AAA-rated companies that make products the world cannot function without. Many of them produce billions in cash flow, which they use to consistently grow their dividends year-after-year.

Royal Blue chip stocks are not particularly exciting. When the overall market is up 15%-20% per year, we might expect the average Royal Blue chip stock to be up more like 8%-10%. In other words, owning Royal Blue chip stocks will drag down performance in a bull market like the one we've seen over the past 6 years.

So why own these stocks?

Less Price Volatility

Royal Blue chip stock prices are far less volatile than the average stock. In a bull market, this low volatility means underperforming the index. Take Procter & Gamble (NYSE:PG), for example. Since the beginning of 2013, PG's price is up 23% compared to 50% for the S&P 500. In a bear market, however, Royal Blue chip stocks act like parachutes. In the second half of 2008, the S&P 500 was down by over 35%. PG, on the other hand, was down by less than 7%.

Royal Blue chip stocks are the reason our Cornerstone portfolio was down by far less than the S&P 500 in the 2008-09 financial crisis. They aren't exciting in bull markets, but when the inevitable bad spell hits -- you are glad that you own them.

Low Business Risk

The chances that a Royal Blue chip company could go out of business are extremely slim. Not only are they some of the most financially secure companies on Earth, but their products are staple to our lives. These companies aren't going away anytime soon.

Steady Dividends

Most Royal Blue chip stocks have paid and grown their dividends every year for decades. When your portfolio contains Royal Blue chip dividend growth stocks, your portfolio continues to produce a growing stream of dividend income, regardless of what happens in the markets.

Stock prices have always been volatile. Our priorities for our clients' portfolios are: security, income and growth - in that order. Royal Blue chips may drag down performance in bull markets, but they will always be a pillar of our Cornerstone portfolio. History shows us that when the next bear market comes, Royal Blue chips should outperform the broader market.