The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.
NEW YORK (
) -- Investors should not make the mistake of thinking they have to settle for low-risk, low-return investments. There are a host of high-yield stocks out there with big dividends and stable cash flows that have been enjoying significant share appreciation in 2011. These investments offer the best of both worlds -- cash-rich blue chips that throw off plump dividends as well as outperform the major indices.
True, some of these blue-chips could see momentum wane in the months ahead as successes become harder to duplicate, or shares move into overbought territory. Blue-chip dividend stocks are not immune to market downturns. However, there's a lot to be said for strong upward momentum in a tough market and a nice quarterly income stream to hedge your bets.
Here are three high-yield blue chips that have dramatically outperformed the major indices so far in 2011, posting double-digit returns despite a near 8% slide for the
and a 5% decline for the
Dow Jones Industrial Average
is the definition of a boring dividend stock. A regional electric and gas utility, you've probably never heard of it if you live outside the tri-state area (New York, New Jersey, Pennsylvania).
But shares have dramatically outperformed the market so far this year, tacking on double-digit gains. So what gives?
True, Consolidated Edison didn't set the world on fire with its August earnings report. Net income fell slightly but topped expectations. But perhaps the biggest reason for longer-term performance is the previous streak of four consecutive quarters with year-over-year profit increases. In the first quarter, for instance, net income rose 37.1% over 2010 numbers.
It's obviously unrealistic to expect a utility to keep up that streak forever. And Wall Street price targets for Consolidated Edison aren't predicting much more upside after the current run. But momentum can't be underestimated in this environment, where investor psychology is at play as much as fundamentals.
Wall Street's 3 Most Valuable CEO
On the dividend front, ED has upped its payout every year for 36 straight years and has paid a dividend since 1885. And a reliable 4.3% yield with a history like that is a pretty good selling point for investors, even if shares do move sideways for a bit.
has defied the downdraft in Big Pharma during the past few years. That trend has continued in 2011, as shares have tacked on 10.6%, thanks to strong numbers and a promising drug pipeline.
In July, Bristol-Myers raised its fiscal 2011 guidance after profits slumped slightly but sales jumped more than 14%. This was after an earnings increase of 33% in the first quarter. But perhaps most impressive for BMY was the recent warm reception for its jointly produced Eliquis blood thinner after a big study, paving the way to tap into sales of as much as $3 billion a few years down the road.
And lest you think that this potential blockbuster is a one-trick pony, BMY also has made strides in several smaller but highly lucrative categories. From a new melanoma drug Yervoy -- a cancer treatment that costs about $100,000 per patient, to anti-rejection drug Nulojix, which received approval for use in the U.S. and Europe to aid kidney transplants, Bristol-Myers Squibb is working hard to build a suite of powerful drugs. That could result in powerful revenue down the road.
In the immediate term, a 4.5% dividend paid for over a century is a great reason to give BMY stock a shot in your portfolio. Big Pharma has fallen on hard times, but the outperformance of Bristol-Myers proves it could be the best opportunity this sector has to offer.
has surpassed analysts' expectations in four of its past five earnings reports, most recently with second-quarter numbers boasting a 15% increase in profits. While its $24.1 billion in revenues has only risen at a modest 3.6% annual rate during the past five years, net income has surged at a 14.6% annual rate -- proving MCD knows how to maintain margins and grow its bottom line even if sales don't soar.
McDonald's is up significantly this year -- more than 14% -- thanks to these impressive numbers. In the longer term, MCD stock has more than doubled since early 2007, while the rest of the stock market was hit hard by the financial crisis and resulting economic downturn.
There are many reasons for McDonald's longer-term success, including a very profitable push into the specialty beverage market with its McCafe drinks during the past several years. But the most significant element for investors going forward is the stewardship of CEO Jim Skinner. The exec has helped to boost McDonald's sales per store by 50% since he took over in 2004, and the store continues to expand its already ubiquitous brand abroad.
Throw in a nearly 3% dividend and you can see why McDonald's is doing so well on Wall Street. With a forward P/E north of 15, shares are a bit pricey -- but the many merits of this stock hint that it is not quite in overbought territory yet.
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Jeff Reeves is editor of InvestorPlace.com. As of this writing, he did not own a position in any of the stocks named here. Follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook.
This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.