4 Dividend Stocks For 2012 Blue Chip Income Investors

Includes: COP, CVX, MA, MDU, T
by: Todd Johnson

I believe blue chip dividend stocks form an income investor's portfolio foundation. Blue chip stocks ideally have the wind at their back and a catalyst for increasing dividend payouts. I prefer a focused business model where management can excel in their specialty. These 4 blue chips offer a proven dividend track record or catalysts to increase shareholder income.

Conoco (NYSE:COP)

Conoco successfully divested Phillips 66 (NYSE:PSX). This was an aggressive 2012 spin off of Phillips 66. Phillips 66 is focused upon downstream energy activities. These functions include refining and marketing, and chemical business operations. Historically refining and chemical businesses have operated in a highly cyclical business environment.

Natural Gas Potential

The Conoco upstream operation acquired Burlington Resources. This $35.6 billion deal closed on March 31st, 2006. Burlington Resources' assets have significant natural gas exposure. Natural gas closed yesterday at $2.76 MMbtu. If natural gas prices increase, then the net revenue proceeds will drop down to Conoco's bottom line.

Share Repurchases

Conoco purchased 4% of its outstanding shares in the 2nd quarter. Management, since 2010, has reduced the outstanding shares by 20%. The stock buyback has a positive impact upon earnings per share.

Dividend Increases

Management stated during their 2nd quarter call the focus upon paying a significant dividend with annual increases. Currently the company is trading at approximately a 7x price to earnings multiple with a 4.6% annual dividend yield.

The dividend should continue to expand if oil remains at high levels. Conoco has assets in the Eagle Ford and Permian Basin. Conoco is building out their Bakken presence. The company's focus is to rely upon low risk conventional North America assets. Global assets, however, exist and are a growth area for today and the future.

Chevron Corporation (NYSE:CVX)

Chevron is a major integrated oil and gas producer. The company has downstream operations too. Refineries receive negative attention when problems arise. Chevron is currently resolving a recent Richmond, California refinery incident.

Upstream and Downstream Operations

I do own shares in Chevron due to their upstream operations. Management, in 2011, did exit refinery operations in 27 countries. Management has stated an intent to divest non strategic refineries and focus upon desirable refineries.

My ambitions include Chevron spinning off the downstream operations. I want a pure play on oil, natural gas liquids, and natural gas.

Dividend Growth

This is a picture perfect image of a growing dividend. Growing dividends result in the investor receiving an increasing cash flow to offset personal expenses and fight inflation.

CVX Dividend Chart
(Click to enlarge)

CVX Dividend data by YCharts

Management has increased dividends on a consistent basis. This is key in creating a growing income stream. Chevron is expected to continue dividend increases as the company trades at an appealing 8x price to earnings valuation. Crude oil closed at $94.36 today.

MasterCard (NYSE:MA)

One would have to be in living in a cave to not notice the rapid growth of societal electronic payments. The move from cash to electronic transfers of money has been nothing short of a technological marvel over the past 20-30 years. MasterCard's stock price has appreciated considerably. When compared to a low revenue growth stock like AT&T (NYSE:T), the MasterCard returns are impressive.

MA Total Return Price Chart
(Click to enlarge)

MA Total Return Price data by YCharts

Worldwide Growth

MasterCard is increasing revenue and earnings quarter after quarter. MasterCard's competition includes Visa (NYSE:V), American Express (NYSE:AXP), Ebay (NASDAQ:EBAY) and their PayPal unit, and venture capital funded firms. MasterCard has plenty of expansion plans in foreign countries and the capital to expand. Revenues and earnings should continue to grow at a rapid rate as electronic payments become the new global "cash".

Balance Sheet

MasterCard has a zero debt balance sheet. This is ideal. I prefer the industry growth potential, barriers to competition, strong balance sheet, and growing dividend.

An AT&T, in comparison, has a higher debt to equity percentage. The dividend is higher but lacks the growth potential of a sector leading business model. MasterCard's clean balance sheet offers growth and common shares are not junior to debt offerings.

T Debt to Equity Ratio Chart
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T Debt to Equity Ratio data by YCharts


MasterCard increased their dividend by 100%. The increase, for April 2012, was 30 cents per quarter from 15 cents. Although the yield is slight at below 1%, the earnings exist for rapidly growing dividends in the coming years. I want to be a part of this movement.

MDU Resources Group Inc. (NYSE:MDU)

MDU Resources Group offers regulated utility services and non regulated energy services to a North Dakota's growing population. The Bakken oil play has provided a boom to the state and region. Thousands of new employees have arrived to fulfill the needs of an ever expanding oil community. MDU Resouces will benefit from increased utility needs and population base.

Dividend Increases

MDU Resources has increased their annual dividend for 74 continuous years. The current annual yield is 3%.

MDU Total Return Price Chart
(Click to enlarge)

MDU Total Return Price data by YCharts

The above chart shows the total return and highlights the overall returns during turbulent markets.

Revenue Mix

MDU Resources has revenues separated by 3 core segments: 1) regulated services (40%); 2) energy and production (36%); and construction (24%). The company has oil production development in 7 states. The growing production area is Bakken, in N. Dakota, with 124,000 acres. The company possessed these assets prior to the recent year Bakken oil boom.

Bakken Catalyst

The capital expenditures are clearly aimed right at the Bakken well sites. Production is increasing and growth will hopefully continue. Management has clear intentions on expanding the Bakken oil production. This could create MDU Resources into a growth stock with an unassuming stock market presence. The company is known, by many citizens, as a utility stock.


I want to focus my investments in companies with growing dividends, growing revenue streams, and strong balance sheets. If there is a catalyst to enhance the returns, then is an often unrecognized positive attribute. My belief is blue chip dividend stocks offer positive attributes and income potential to offset inflation and provide a reliable income stream.

If the business model has negative changes, then I will not hesitate to liquidate my position. Investing is similar to gardening. The retail investor must pay close attention to corporate governance. Weeds must be removed from one's garden and one's investment portfolio.

Disclosure: I am long MA, V, EBAY, MDU, COP, CVX.