One of the best things about investing in the stock market is the ability to earn more than 100% on an investment but have your losses limited to the amount of your original investment.
In addition if you can find growing companies with a predisposition to returning excess funds to shareholders, holding on for the long-term (five years or more) can prove to be even more rewarding – through a growing stream of juicy fully franked dividends!
For investors approaching retirement, it's important to have a very well diversified portfolio which includes blue chip stocks which pay dividends, some bonds, cash and exposure to property (at a good price, of course!).
In this low interest rate environment, it's arguably more important than ever to not overexpose yourself to any one asset class – including shares. However, if you don't have enough exposure to shares, here are four blue chip dividend-paying stocks I'd buy for my Mum, or myself – one I already have!
Four blue chip ASX stocks for your retirement portfolio
- Computershare Limited (ASX: CPU) is the $6.4 billion company which connects shareholders and the companies they invest in. The company has global exposure and although shares may appear expensive using a simple P/E ratio, it's a strong defensive business and is expected to grow earnings healthily in coming years. Computershare will also benefit from a falling Australian dollar and rising US interest rates.
- Washington H. Soul Pattinson & Co. (ASX: SOL) is a $3 billion diversified holding company with a portfolio of well-known Australian businesses, including Ruralco, Brickworks and TPG Telecom. It is forecast to pay a 3.6% fully franked dividend in the next 12 months.
- Transurban Group (ASX: TCL) has one of the most reliable business models of all companies within the S&P/ASX 200 (ASX: TCL) (INDEX: ^AXJO). The toll road operator also has exposure to a depreciating Australian dollar – thanks to its ownership of foreign toll roads – and pays a generous dividend, currently 4% with partial franking. Although the company's earnings per share and payout ratio look unusual, it's important to understand that as an infrastructure company, Transurban takes a lot of non-cash charges (depreciation and amortisation etc.) which is normal, but may impact common ratios.
- Woolworths Limited (ASX: WOW), one of Australia's largest supermarket operators, has been sold down in the past year following poor performances from its Masters Home Improvement stores and as fears of international competition take hold. However at today's price of $32.50, savvy investors are likely licking their lips at the opportunity to buy a solid blue chip stock at a hefty discount to its price this time last year.
