Many people have some extra money this time of year. It could be a bonus from your employer or a tax refund. Either way, you should consider investing that money in a way that will benefit you, such as the stock market. As you read this, chances are you already have a stock portfolio and are looking to expand it.
I scanned the market to find three undervalued blue chip stocks that you can buy for $5,000 or less and hold forever without sleeping at night. There aren’t many stocks that let you do that, so this is what you want to see.
1. What does a 9% dividend yield sound like?
Altria Group (NYSE:MO) doesn’t get much hype due to its controversial business model. The company sells Marlboro cigarettes and other nicotine products in the United States. It’s not for everyone, but the stock is a dividend beast that can deliver big dividend income for your portfolio. The stock yields an impressive 9.3% at the current share price, supported by a manageable dividend payout ratio of 74%.
America’s smoking rate has indeed fallen sharply over time, but population growth and pricing power have allowed Altria to continue growing its cash flow. Altria makes about 85% to 90% of its profits from smokeable products, such as cigarettes and cigars, but the future lies in smokeless products, which is where Altria focuses.
Today, the stock trades at a price-to-earnings (P/E) ratio of eight times estimated 2024 earnings. For reference, the broader stock market trades at a price-to-earnings ratio of more than 20. In other words, the market has Altria left for dead. But this company is still alive. Management supported its belief in Altria’s value by selling back part of its stake (previously 10%) Anheuser-Busch InBev to expand its share buyback program. Those looking for big dividend checks should follow management’s lead and snap up shares.
2. The ultimate buy-and-hold stocks are on sale
Holding stocks forever is about avoiding stress. Getting that kind of slack in an investment portfolio requires the utmost confidence in a company. Healthcare conglomerate Johnson & Johnson (NYSE: JNJ) Correct. To begin with, healthcare is a crucial sector that will never disappear, an evergreen market. Johnson & Johnson develops and sells pharmaceutical products and medical devices in various end markets.
Financially speaking, it doesn’t get any better than Johnson & Johnson. Where to start? The company has paid and increased its dividend for 62 years in a row. Think back to all the ups and downs the world has seen over the past sixty years… it doesn’t matter: Johnson & Johnson continues to persevere. The excellent balance is an important reason for this. The company has a coveted AAA rating, one of only two companies in the world with such a rating, even higher than that of the US government. That says a lot.
Johnson & Johnson is not a hyper-growth stock. It’s the tortoise, not the hare. Analysts believe profits will grow in the single digits annually over the next three to five years. However, with a price-to-earnings ratio of less than 14, the stock seems too cheap for the quality it represents.
3. Sign up for monthly dividends
Land is humanity’s oldest asset, and Real estate income (NYSE:O) is a great way to benefit from owning real estate without having to spend millions of dollars owning buildings. Realty Income is a Real Estate Investment Trust (REIT), a unique business entity that rents out real estate it owns and distributes the majority of its taxable income as dividends to shareholders. The company is also known for paying monthly dividends.
Realty Income has proven over the years that investors can trust that the checks will keep coming. Realty Income focuses on single-tenant retail properties. It targets recession-proof tenants like supermarkets and dollar stores, movie theaters and gyms, all businesses that do quite well no matter what the economy does. Financially speaking, Realty Income is rock solid. The company has paid and increased its dividend for 31 years in a row and boasts a solid payout ratio of 71%.
High interest rates have put pressure on stocks in recent years. REITs borrow heavily to finance growth because they pay their earnings to investors. Higher interest rates could put pressure on profit margins and make debt more expensive, potentially hampering growth. But this is a blue chip real estate stock that trades at just 12 times the amount from operations (earnings for REITs). Interest rates fluctuate over time, so buy Realty Income while rates are low and hold it forever.
Should You Invest $1,000 in Altria Group Now?
Consider the following before purchasing shares in Altria Group:
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Justin Pope has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Realty Income. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.
Do you have $5000? Here Are 3 Undervalued Stocks to Buy and Hold Forever was originally published by The Motley Fool
