7 Blue-Chip Cash Cows to Milk for Steady Income

Stocks to buy

When you’re still years away from retirement, you want to ramp up your portfolio to target growth-oriented enterprises. At the same time, there’s a lot of comfort and confidence in so-called cash cows. These enterprises enjoy a range of attributes, from low volatility, high consistency and dominance in their chosen markets. As a result, blue-chip income stocks help complement your overall holdings.

To be clear, you don’t want to abandon ship with your growth strategies. However, some allocation to blue-chip income stocks may help investors weather market storms. Because cash cows often generate high profit margins and robust cash flow, they can drive over obstacles that to them are the equivalent of annoying speed bumps (rather than wheel-busting potholes).

Of course, every asset class has its set of pros and cons. With cash cows, you’re dealing with established entities. Therefore, outright growth is eschewed in favor of consistent shareholder rewards. Still, that can be appropriate during times of uncertainty. With that, below are blue-chip income stocks to consider.

Costco (COST)

A Costco Wholesale (COST) warehouse in Auburn Hills, Michigan.

Source: ilzesgimene / Shutterstock.com

A membership-only big-box retailer, Costco (NASDAQ:COST) easily ranks among the blue-chip income stocks to add to your portfolio. Fundamentally, the company benefits from a higher-income consumer base. I don’t mean to be crude but the membership fee helps weed out lower-income shoppers. Plus, because Costco favors bulk purchases, it can be an effective mitigation tool against inflation.

Of course, what makes COST stock a cash cow is its robust financials. In each of the past four quarters, Costo beat its bottom-line target. On average, the company’s earnings per share landed at roughly $4.04. This performance translated to an average earnings surprise of 4.18%.

During the trailing 12 months (TTM), Costco posted net income of $7.17 billion or earnings of $16.15 per share. Revenue during the cycle hit $253.7 billion. Also, data from Yahoo Finance reveals that Costco’s operating cash flow reached $12.11 billion, while its levered free cash flow (FCF) hit $5.25 billion.

As for the dividend yield, it’s not much at 0.55%. Still, it’s better than nothing.

Colgate-Palmolive (CL)

Colgate toothpaste and mouthwash in a cup with a toothbrush

Source: monticello / Shutterstock.com

A consumer goods giant, Colgate-Palmolive (NYSE:CL) is best known for its personal care products. In particular, its oral health unit keeps the lights on. Moreover, CL stock benefits from consistent and predictable demand. No, it’s not the most exciting idea ever. Still, the point remains that irrespective of economic cycles, people still brush their teeth every day.

With such predictability comes consistently solid financials. In the past four quarters, Colgate managed to beat bottom-line targets in all of them. The average EPS came out to 84 cents. Further, the average earnings surprise landed at 4.7%. During the TTM period, Colgate posted net income of $2.61 billion or $3.15 per share.

In the same cycle, revenue reached $19.75 billion. Further, the most recent quarterly sales growth rate (year-over-year) hit 6.2%. The retailer generated operating cash flow of $3.69 billion while levered FCF landed at $2.8 billion.

Notably, the company offers a forward dividend yield of 2.09%. For a combo of consistency and yield, CL makes for one of the top blue-chip income stocks.

Procter & Gamble (PG)

A photo of bottles of Tide detergent from Procter & Gamble (PG) on a store shelf.

Source: rblfmr/ShutterStock.com

Another powerhouse in the consumer goods segment, Procter & Gamble (NYSE:PG) offers a range of products that people use daily. While it’s a boring entity, PG stock on those rare moments can be rather exciting. For example, during the Covid-19 onslaught, toilet paper became a hot commodity. Cynically, this dynamic suited P&G just fine.

Nowadays, people look to the company to provide consistent financial performances, irrespective of outside conditions. Between the second quarter of 2023 to Q1 2024, P&G posted an average EPS of $1.64. This print yielded an earnings surprise of 6.55%. In the TTM period, the consumer goods giant posted net income of $14.84 billion or $6.12 per share.

In the same cycle, revenue hit $84.06 billion. The most recent quarterly sales growth rate pinged at 10.5%. Operating cash flow reached $19.43 billion while levered FCF hit $12.29 billion. Thus, it’s easily one of the blue-chip income stocks.

For the yield, shareholders enjoy a solid one at 2.47%. Further, the payout ratio – while modestly elevated at 61.48% – is reasonable given what you’re getting.

Home Depot (HD)

Home Depot (HD) storefront on a sunny day

Source: Jonathan Weiss / Shutterstock.com

A home-improvement store, Home Depot (NYSE:HD) technically calls under the consumer cyclical space. However, one could make the argument that HD represents an indelible business. That’s especially true when the smelly stuff hits the proverbial fan. Often, when natural disasters strike, Home Depot stores will remain open (so long as it’s feasible). It can be a literal lifesaver.

Of course, with this framework, it’s no shocker that HD ranks among the best blue-chip income stocks to buy. Granted, the company doesn’t offer much in the way of excitement financially. However, it did beat all of its past four bottom-line quarterly targets. Further, the average earnings surprise came out to 2.15%.

During the TTM period, Home Depot posted net income of $14.87 billion or $14.93 per share. Revenue in the cycle clocked in at $151.83 billion. Further, operating cash flow landed at $21.06 billion, while levered FCF reached $14.72 billion.

For passive income, Home Depot offers a forward dividend yield of 2.68%. Further, the payout ratio isn’t bad at 57.1%, providing confidence regarding yield sustainability.

PepsiCo (PEP)

Pepsi (PEP) Factory in Samara, Russia. Pepsi logo on a blue warehouse.

Source: FotograFFF / Shutterstock

A powerhouse brand in the snack food and beverage industry, PepsiCo (NASDAQ:PEP) isn’t exactly having the greatest year so far. However, patient investors may be able to see significant gains over the long run. That’s because Pepsi is one of the world’s top providers of caffeinated beverages. Increasingly, young people are turning to non-coffee energy drinks, which may bode well for PEP stock.

Financially, what makes Pepsi a top-tier enterprise among blue-chip income stocks is consistency. As with the other companies, the beverage maker beat all of its past four bottom-line quarterly targets. The average EPS came out to $1.90 while the average earnings beat landed at 5.08%.

During the TTM period, Pepsi posted net income of $9.18 billion or $6.65 per share. Revenue hit $91.88 billion, with the most recent quarterly sales growth rate landing at 2.3%. Operating cash flow pinged at $12.79 billion while levered FCF was $6.42 billion.

Notably, Pepsi offers a forward dividend yield of 3.33%. However, the payout ratio is elevated at 76.2% so it’s something to watch.

Cisco (CSCO)

the cisco (CSCO) logo on a wall

Source: Valeriya Zankovych / Shutterstock.com

Based in San Jose, California, Cisco (NASDAQ:CSCO) falls under the communication equipment industry. Per its public profile, Cisco designs, manufactures and sells Internet (IP)-based networking products to the communications and information technology (IT) industry. It also offers critical services, such as data center switching and enterprise routing. CSCO stock hasn’t enjoyed the best start to the year but circumstances could be improving.

As one of the blue-chip income stocks, Cisco’s main selling point right now is consistency. Along with the other companies, the telecom equipment giant beat its past four bottom-line targets. The average EPS came out to 97 cents while the average earnings surprise hit 6.45%. That’s impressive considering the circumstances.

In the TTM period, Cisco posted net income of $12.12 billion or $2.96 per share. Revenue in the cycle hit $55.36 billion. Also, operating cash flow landed at $13.12 billion while levered FCF came out to $14.41 billion.

To be upfront, investors shouldn’t expect much growth this year in either earnings or sales. However, to make up for it, Cisco offers a forward yield of 3.37%.

Johnson & Johnson (JNJ)

A red Johnson & Johnson (JNJ) sign hangs inside in Moscow, Russia.

Source: Alexander Tolstykh / Shutterstock.com

One of the world’s biggest healthcare juggernauts, Johnson & Johnson (NYSE:JNJ) easily ranks among the top cash cows. Following the spin off of its consumer health products division, J&J focuses now on pharmaceuticals and medical tech. The move may add efficiency to the overall framework. In fairness, JNJ stock has gotten off to a slow start. Still, over the long run, it should do fine.

Financially, J&J represents one of the few companies that you can consistently depend on. That said, I need to be upfront: the company missed its Q2 2023 estimate by 6 cents, with a negative earnings surprise of 2.3%. Still, the average EPS in the past four quarters came out to roughly $2.56. And the earnings surprise poked its head at 1.6%.

In the TTM period, J&J posted net income of $17.07 billion or $6.74 per share. Revenue hit $85.65 billion. Also, operating cash flow clocked in at $23.19 billion while levered FCF was $24.3 billion.

Finally, J&J offers a forward dividend yield of 3.39%. It’s one of the blue-chip income stocks to buy.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. Tweet him at @EnomotoMedia.

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