Our customers. For small business. For enterprise. A blue chip is a company that is recognised nationally for its positive reputation and high-quality product or service. Blue chips are successful businesses that can be trusted to perform well and operate profitably even under adverse market conditions.
The term was first coined in the s by Oliver Gingold, who worked for Dow Jones, and is a reference to poker chips—wherein blue chips hold the highest value. At the time, the term was used to describe stocks of particularly high value, but these days blue chip refers less to the price of the stock itself and more to the stature of the company.
Having said that, you can certainly expect blue chip stocks to come with a hefty price tag. Blue chip companies tend to be free of debt, and most blue chip companies offer favourable dividends to their shareholders.
Risk-averse investors may look to blue chip stocks as they are, in theory, less volatile than non-blue chip investments. Because of their reputation and stature, stocks for blue chips are, of course, highly desirable. This high liquidity makes blue chip stocks even more attractive. A blue chip index is a share index that tracks the stock performance of blue chip companies. Stocks that are considered blue-chip stocks generally have these things in common:.
Large market capitalization. Market cap is a measure of the size and value of a company. Growth history. Blue-chips have a reliable, solid history of sustained growth and good future prospects. Component of a market index. Not all blue-chip stocks pay dividends, but many do. Companies that pay dividends are often mature, which means they may no longer need to invest as much revenue back into their growth.
Interested in dividends? View our list of 25 high-dividend stocks. No one type of stock should make up the bulk of your portfolio. Diversifying requires spreading your money around among many types of companies. That means including companies with small, mid and large market capitalizations, as well as companies from various industries and geographic locations.
Learn more about the types of stocks you can invest in. However, blue-chips are popular among investors, especially older or more risk-averse investors, because of their reliability.
Investors also appreciate the dividends blue-chip stocks typically pay. Blue-chip stocks tend to pay reliable, growing dividends. As noted above, blue-chip stocks are generally, but not always, household names. Note that this list does not include every blue-chip stock; it is just intended to be a sample. Amazon AMZN. Apple AAPL. List of Partners vendors. A blue chip is a nationally recognized, well-established, and financially sound company.
Blue chips generally sell high-quality, widely accepted products and services. Blue-chip companies are known to weather downturns and operate profitably in the face of adverse economic conditions, which helps to contribute to their long record of stable and reliable growth.
How big a company needs to be to qualify for blue-chip status is open to debate. A blue-chip company is a multinational firm that has been in operation for a number of years. Blue-chip companies have built a reputable brand over the years and the fact that they have survived multiple downturns in the economy makes them stable companies to have in a portfolio. The name "blue chip" came about from the game of poker in which the blue chips have the highest value.
Many Conservative investors with a low risk profile or nearing retirement may usually go for blue-chip stocks. These stocks are great for capital preservation and their consistent dividend payments not only provide income, but also protect the portfolio against inflation. In his book The Intelligent Investor , Benjamin Graham points out that conservative investors should look for companies that have consistently paid dividends for 20 years or more.
Blue-chip stocks are seen as less volatile investments than owning shares in companies without blue-chip status because blue chips have an institutional status in the economy. The stocks are highly liquid since they are frequently traded in the market by individual and institutional investors alike. Therefore, investors who need cash on a whim can confidently create a sell order for their stock knowing that there will always be a buyer on the other end of the transaction.
Blue-chip companies are also characterized as having little to no debt, large market capitalization , stable debt-to-equity ratio , and high return on equity ROE and return on assets ROA.
The solid balance sheet fundamentals coupled with high liquidity have earned all blue-chip stocks the investment-grade bond ratings. While dividend payments are not absolutely necessary for a stock to be considered a blue chip, most blue chips have long records of paying stable or rising dividends.
An investor can track the performance of blue-chip stocks through a blue-chip index , which can also be used as an indicator of industry or economy performance. Although changes made to the DJIA index are rare, an investor tracking blue chips should always monitor the DJIA to stay up to date with any changes made.
While a blue-chip company may have survived several challenges and market cycles , leading to it being perceived as a safe investment, this may not always be the case. The bankruptcies of General Motors and Lehman Brothers , as well as a number of leading European banks during the global recession of , is proof that even the best companies may struggle during periods of extreme stress. While blue-chip stocks are appropriate for use as core holdings within a larger portfolio, they generally shouldn't be the entire portfolio.
A diversified portfolio usually contains some allocation to bonds and cash. Within a portfolio's allocation to stocks, an investor should consider owning mid-caps and small-caps as well.
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