Investors have been snapping up shares of some of Australia's most popular blue chips recently, including the likes of Commonwealth Bank of Australia (ASX: CBA) and BHP Billiton Limited (ASX: BHP).
The shares have gained 3.6% and 6.8% over the past month, respectively, with Australia and New Zealand Banking Group (ASX: ANZ) also a hot target for investors.
There is a lot to like about holding blue chip shares. For many investors, blue chips provide a sense of familiarity and reliability while many, including the banks mentioned previously, offer a solid fully franked dividend yield as well. In this low interest rate environment, those dividends might seem difficult to ignore.
But regardless of what dividend a company pays, or how well it has performed historically, investors need to remember that they are investing for future growth. In other words, investors need to ensure they are paying a reasonable price today to give them a better chance of earning a sufficient return in the long-run.
Right now, the banks look expensive and are also facing the very real prospect of limited future growth (not to mention the potential risks associated with being so exposed to Australia's housing sector). Likewise, BHP Billiton shares have surged higher on the back of rebounding commodity prices; if commodity prices fall, I would expect BHP's shares to follow in haste.
So, if investors are to ignore the allure of BHP Billiton shares, and they are to avoid the banks at their current share prices, what blue chip shares should investors take a look at?
One traditional blue chip share I still like is Telstra Corporation Ltd (ASX: TLS). Although its days of strong growth are likely behind it, the telecommunications giant still generates strong cash flows and has a loyal customer base. Pleasingly, it also offers a very compelling 5.9% fully franked dividend yield with the prospect of future capital gains, as well.
Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) is one of Australia's oldest public companies. In fact, having listed its shares on the ASX in 1903, it is the second oldest surviving company on the ASX, behind BHP Billiton. In short, Soul Patts is an ultra-long-term focused investment conglomerate with exposure to a number of different industries. It has done an astounding job of growing shareholder wealth over the decades, which is a good sign of things to come, and offers a solid 3.3% fully franked dividend yield.
Finally, CSL Limited (ASX: CSL) is a biopharmaceutical giant with a market capitalisation north of $46 billion. The company's shares have come right down in price since peaking at more than $120 in July last year (they're now fetching $101 per share) and offer growth as well as defensive characteristics that should help it during times of economic uncertainty.
