Investors are facing great challenges this year due to the surge of inflation to a 40-year high and the onset of a bear market. Not only have the portfolios of most investors bled due to the 22% decline of the S&P 500 this year, but the actual value of most portfolios has been eroding due to the surge of inflation.

Blue Chips are great candidates for the portfolios of risk-averse, income-oriented investors, as they are likely to continue raising their dividends during the ongoing downturn while their stock prices are less volatile than the broad market in principle.

In this article, we will discuss the prospects of three high-quality Blue Chips, namely Johnson & Johnson (JNJ), Procter & Gamble (PG) and McDonald’s (MCD), which offer safe dividends.

Johnson & Johnson

Johnson & Johnson is a diversified pharmaceutical giant. It was founded in 1886 and generates 49% of its sales from its pharmaceutical segment, 34% of its sales from medical devices and 17% of its sales from its well-known consumer products.

Johnson & Johnson belongs to the best-of-breed group of Dividend Kings, with 60 consecutive years of dividend growth. It is well known for its consumer products but its pharmaceutical segment is by far the most profitable segment, as it generates approximately 75% of the earnings of the company.

Johnson & Johnson has 28 brands/pharmaceutical platforms that generate more than $1 billion in annual revenues. The company has a dominant position in its markets, as it generates approximately 70% of its revenues from the Nr 1 or Nr 2 market share position.

Moreover, Johnson & Johnson is the fifth-largest company in the U.S. and the eighth-largest company in the world in the amount spent on Research & Development (R&D). Thanks to its exceptional R&D department, the pharmaceutical giant has an admirable performance record. It grew its adjusted operational earnings for 36 consecutive years until 2020, when the pandemic caused a benign 7% decrease in its earnings per share.

Despite the minor decrease in earnings in 2020, Johnson & Johnson has proved resilient throughout the coronavirus crisis. The company grew its earnings per share 22% in 2021, to a new all-time high, and has provided guidance for record earnings per share of $10.15-$10.30 in 2022, implying 4% growth at the mid-point. Overall, Johnson & Johnson is in a reliable long-term growth trajectory.

The exceptional earnings growth record and the resilience of the company to downturns are the key factors behind its exceptional dividend growth streak. The stock is currently offering a 2.6% dividend yield, which is typical for this high-quality stock that attracts numerous dividend-growth investors. Given its solid payout ratio of 44% and its healthy balance sheet, Johnson & Johnson is likely to continue raising its dividend for many more years. Thanks to its rock-solid business model, the stock is a great candidate for the investors who seek resilience and low volatility in results and stock price during the ongoing bear market.

Procter & Gamble

Procter & Gamble is a consumer products giant that sells its products in more than 180 countries and generates approximately $76 billion in annual revenues. Its brand portfolio includes several well-known brands, such as Pampers, Luvs, Tide, Gain, Bounty, Charmin, Puffs, Gillette and Head & Shoulders.

Procter & Gamble stagnated during 2011-2016 due to increased price sensitivity of consumers and a boom of private label products. The company was also negatively affected by numerous laggards in its brand portfolio, which were exerting a strong drag to its overall performance.

Fortunately, Procter & Gamble implemented a drastic restructuring program and thus it managed to turnaround. It divested nearly two-thirds of its brands and thus got rid of the slow-growth, low-margin products while it maintained the ones with the widest margins and the strongest growth potential. In addition, thanks to the high-grading of its portfolio, Procter & Gamble was able to focus much more efficiently on its most promising brands.

Thanks to its restructuring project, Procter & Gamble has returned to its multi-decade growth trajectory. It grew its earnings per share by 7% per year on average between 2016 and 2019 and accelerated its performance in 2020-2021 thanks to a strong tailwind from the pandemic, which forced people to spend much more time at home and thus increased their consumption of the products of Procter & Gamble.

Thanks to the nature of its products and the strength of its brands, Procter & Gamble has always proved rock-solid during recessions and bear markets. Just like most companies, Procter & Gamble is currently facing a strong headwind due to the surge of cost inflation to a 40-year high. However, Procter & Gamble can pass its increased costs to consumers much more easily thanks to the unparalleled strength of its brands. It is thus one of the most resilient consumer products companies in the highly inflationary environment prevailing right now.

Moreover, thanks to the consistent growth of its premium products and its expansion in international markets, Procter & Gamble has accomplished an exceptional dividend growth record. The company is a Dividend King, with 66 consecutive years of dividend growth. Moreover, due to its correction, along with the broad market, the stock is currently offering a 10-year high dividend yield of 3.7%. Given its reasonable payout ratio of 62%, which is in line with its historical average, and its resilient business model, Procter & Gamble can easily continue raising its dividend for many more years.

McDonald’s

McDonald’s is the largest foodservice retailer in the world, with more than 40,000 locations in over 100 countries and annual revenues of nearly $24 billion. Approximately 93% of the stores are independently owned and operated.

McDonald’s has one of the strongest brands in the investing universe. The restaurant chain stagnated in 2014-2015 due to intense competition in its business and a somewhat obsolete menu. However, thanks to a change in management, the company managed to reignite growth by offering all-day breakfast and drastically improving its menu via the addition of healthier options.

Thanks to its strong brand and its affordable menu offerings, McDonald’s has proved extremely resilient during recessions. In fact, the company proved one of the most resilient companies in the Great Recession. While most companies saw their earnings collapse in that crisis, McDonald’s kept growing its earnings and its dividend at a fast pace. As a result, the stock outperformed the S&P 500 by an impressive margin in the Great Recession and its shareholders never felt the impact of the worst financial crisis of the last 90 years.

Thanks to its relentless expansion abroad and its resilience during recessions, McDonald’s has an impressive dividend growth record. The company has raised its dividend every single year since it initiated its dividend, in 1976. In other words, it has raised its dividend for 46 consecutive years.

On the other hand, the stock is currently offering a nearly 10-year low dividend yield of only 2.3%. The poor yield has resulted primarily from the awareness of the investing community that McDonald’s is one of the most resilient companies during downturns. To be sure, the stock has declined only 9% this year, whereas the S&P 500 has plunged 22%.

Overall, investors should rest assured that McDonald’s will easily endure a potential recession and the ongoing bear market. On the other hand, they should be aware that the market has already appreciated the resilience of this unique restaurant chain and hence the stock seems almost fully valued right now.

Final Thoughts

Investors are facing a perfect storm this year due to 40-year high inflation and a potential recession, which may be caused by the aggressive interest rate hikes of the Fed. During such tumultuous periods, most investors look for resilient companies, which will easily endure the downturn and will keep raising their dividends. The above three stocks undoubtedly fit this description. They have exceptional growth records thanks to their strong brands and have proved rock-solid during recessions. Investors should rest assured that these dividend stalwarts will continue raising their dividends for many more years.