Table of Contents Hide
- What Are Blue Chip Stocks?
- Characteristics of Blue Chip Stocks
- Top 10 Blue Chip Stocks
- How to Invest in Blue Chip Stocks
- Is Investing in Blue-Chip Companies Risky?
- How Do You Know if a Stock Is a Blue Chip?
- What Are the Benefits of Blue Chip Stocks?
- Blue Chip Stocks FAQs
- What is the safest blue-chip stock?
- Are Blue-Chip Stocks Good for Passive Investors?
- What are the four types of stocks?
- Similar Posts
Investing, when done correctly, has very little in common with gambling. However, the phrase “blue chip stocks” does take inspiration from gambling. No one can agree on what makes a stock a “blue chip,” but everyone agrees that the companies with these stocks are valuable, stable, and have been around for a long time. They are often household names and big players in their fields, and investors trust them because they can be counted on. Blue chip companies, which some may view as “old school,” are still operating because they are stable and reliably profitable. In this article, we will discuss how to invest in blue chip stocks, their characteristics, their dividend, and the top 10 blue chip stocks you can rely on in the modern era.
What Are Blue Chip Stocks?
Blue chip stocks are shares in major, well-known corporations that have a track record of consistent growth and dividend payments.
As a general rule, blue chip stocks have lower volatility and higher earnings than other stock classes. Due to their reliability, many stocks may appear to be expensive. To give an example, if you were to compare Apple’s stock price with that of its competitors right now, you may conclude that it’s quite pricey.
To some, the idea that an investment can be both secure and expensive is contradictory. However, when viewed in the context of how markets function generally, this makes perfect sense. There will always be a market for anything or any service (including stocks), and customers in that market will pay whatever price it takes to obtain the good or service.
The Basics of Blue Chip Stocks
Although dividend payments are not strictly required for blue chip stocks, the majority of blue chip stocks have a long history of maintaining or increasing dividend payments. People think that the name comes from the game of poker, where blue chips, which represent the biggest bet, are used.
Furthermore, blue chip stocks are ones that are included in reputable market indexes or averages, such as the Jones Industrial Average, the Standard & Poor’s (S&P) 500, and the Nasdaq-100 in the United States; the TSX-60 in Canada; or the FTSE Index in the United Kingdom. These indexes and averages are used to measure the performance of the market.
There is some room for discussion over the minimum size needed for stocks to be considered blue chip. Even though market or sector leaders can be businesses of any size, a market value of $5 billion is often used as a benchmark.
The T. Rowe Price Blue Chip Growth Fund invests in large and mid-cap companies that are well-known in their fields. There are no strict rules about market cap size, but the median market cap of the fund’s holdings has been close to $100 billion in the past. In spite of the fund’s emphasis on large and medium-sized companies that are leaders in their fields, it underperformed the S&P 500.
Characteristics of Blue Chip Stocks
Blue-chip stocks are like the stocks you’d show off to your parents: the first impression is a nice one, and the content supports this assessment. It’s dependable, trustworthy, and steadfast.
Also, blue-chip companies are those that have always done well for investors, whether the economy was doing well or not. Blue chip stocks will typically have these characteristics:
#1. Blue-Chip Stocks Typically Pay a Dividend
However, the vast majority of blue chip stocks do offer dividends to their shareholders. Dividends are paid out from the company’s profits on a regular basis to people who own shares. Bluechip stocks that pay dividends are usually owned by well-known companies that no longer need to reinvest a lot of their profits to grow.
While dividend payments aren’t required for blue chip stocks, many investors look for stable or increasing dividends from their holdings. They frequently distribute dividends to their stockholders.
#2. Stocks With a Big Market Capitalization
The fact that blue chip stocks have a significant market capitalization is one of the characteristics that distinguish them. The total value of a company’s shares contributes to what is known as the “market capitalization” of the company. Large-cap equities, sometimes known as “blue chip stocks,” are classified as such because the firms that own them have a significant overall market capitalization (market cap). The market value of these stocks is at least $10 billion, so they are considered to have a “large cap.”
#3. The Expansion of Blue Chip Companies Is Consistent
Blue chip firms are those that have a good reputation for steady growth and can be trusted, and those firms are the ones that issue blue chip stocks. They have already achieved success and have promising possibilities for the future. They have, for the most part, already hit the pinnacle of their potential growth.
#4. Long Term Perspective
Those with a poor tolerance for risk should choose blue-chip investments over the long run. The reason for this is that blue-chip stocks only deliver when held for an extended period of time.
Due to the huge volume of trades made in the market by both retail and institutional investors, blue chip stocks have a high level of liquidity. As a result, shareholders who need cash quickly can rest assured that their shares will find buyers.
#5. It’s Safe to Invest in These Stocks (Low Risk)
Investments in blue chip stocks are typically safe bets because of their track records. These stocks are typically thought to be secure bets. This is because the issuing blue chip companies are extremely stable and have ample means to meet their financial commitments.
Blue-chip companies have a track record of steady expansion and promising futures. They aren’t as exciting as some of the fast-growing tech stocks, but that’s probably because they’ve already made their mark.
Top 10 Blue Chip Stocks
Looking for the top blue-chip stocks? You won’t have a hard time finding recommendations. While it’s true that top ten and five lists can serve as useful guides, it’s not a good idea to just take the recommendations of any list at face value.
Conducting one’s own extensive research is always the wisest course of action. Also, you should do this research based on a set of criteria that you think is important for a diversified portfolio or trading strategy. Here are the top 10 blue chip stocks:
Bill Gates and Paul Allen, two computer whizzes from college, founded Microsoft in 1975 and expanded it into one of the world’s largest companies. Microsoft is now one of the three largest companies in the world, with a market worth of a staggering $1.5 trillion. Windows, Office, and Excel are just a few of the many Microsoft products that are standard on most PCs. It also manufactures hardware such as the Xbox gaming console and Surface tablets.
Furthermore, Microsoft’s stock price has increased by more than 49% over the past 12 months, and the company’s sales were over $143 billion last year. Microsoft’s announcement of the Xbox’s next generation recently generated news. The more expensive Xbox Series X will retail at $499 in 2020, while the Xbox Series S will be available for $299. In addition, the month of November will see the retail release of both systems.
#2. Berkshire Hathaway (BRK.B)
The second largest firm on our list of blue-chip stocks is the second largest corporation overall. Famous investor Warren Buffet helped Berkshire Hathaway achieve widespread success. Its current market value is $530 billion. Berkshire’s steadiness is on par with that of J&J.
Gen Re, GEICO, and other insurance firms are part of the company’s portfolio, as are BNSF Railway Co. and other railroads, utilities, and other sectors. Berkshire seems to be in such a strong position that only a worldwide economic collapse could hurt it.
Coca-Cola owns and markets a number of well-known beverage brands, including many that are not fizzy but are still popular among consumers. These include Minute Maid, Georgia Coffee, Costa, and Glaceau, in addition to the more well-known Coke, Fanta, and Sprite. A network of over 100 bottlers processes and distributes the company’s beverage concentrates. This is the first step in the supply chain.
Roughly 85% of the company’s unit case volume comes from concentrate activities. Mexico, Brazil, and Japan are among the company’s most important non-U.S. markets, where it produces the majority of its sales.
When considering which blue chip stocks to add to our portfolio, AT&T stands out due to its substantial dividend payout. Currently, dividends are being distributed at a rate of 6.8 percent. Of all the companies on our list, this one has the largest dividend payout. Currently, AT&T is worth $266 billion. Along with T-Mobile US (TMUS) and Verizon Communications, it is a major player in the monopolistic U.S. telecom industry (VZ). now controls Warner Bros.
As Warner Bros. broadcasts all of its theatrical films on this streaming channel, HBO Max has the potential to grow as a result of this.
Visa is one of the two largest credit card networks in the United States, along with Mastercard; American Express and Discover are also significant players. Visa’s market valuation of $450 billion is more than Mastercard’s by more than $100 billion. Visa is still a credit card provider but also a global payments processing company.
For the past four quarters in a row, Visa’s earnings have been in line with or above estimates, and the company has enjoyed quarterly sales and earnings growth for the past five years. However, Visa’s dominant position in the payment processing sector bodes well for the company’s continued status as a blue-chip stock.
Up until about the middle of December, AbbVie had gained approximately 17% on the year. This happened when the markets were trying to fix the drop in value that had happened in 2018 and 2019. This drop in value was partly caused by their $63 billion purchase of Allergan, which makes Botox. Additionally, AbbVie is a high-dividend blue-chip stock, bringing out a healthy dividend yield of 4.9%. AbbVie makes many billion-dollar drugs, such as Skyrizi, which is used to treat plaque psoriasis, and Imbruvica, which is used to treat cancer. As a result of all of this, the newest member of the roster of blue-chip companies is quite exciting.
#7. Johnson & Johnson
With a market capitalization of $387 billion and a workforce of more than 132,000 employees, Johnson & Johnson is one of the largest pharmaceutical companies in the United States. Tylenol, Benadryl, Sudafed, and Neosporin are just a few of the well-known medicines made by Johnson & Johnson that are used to treat common illnesses. The company’s reach has expanded into neurology, infectious disease, and immunology. They are competing with other drug companies to come up with a good vaccine for the coronavirus.
Since going public in the 1960s, Johnson & Johnson stock has been one of the market’s long-term winners. Yet, not all of the news coverage has been upbeat. The Tylenol murders made headlines across the country in the 1980s, but the killers were never apprehended. The state of New York recently sued the drug maker for $2 billion on the basis that the company falsely marketed opioids as safe while downplaying their risks.
#8. The Walt Disney Co
One of the largest and most recognizable firms in the world is on our list of blue-chip companies, which may or may not surprise you. Because of the epidemic in 2020, this $270 billion entertainment company had to close parks and cruises, which hurt its finances. Some industries may get back to normal in a few years when the world starts to heal.
As an added bonus, Disney released its Disney+ streaming network in 2019—right before the epidemic hit. Since then, Disney has amassed 86.8 million users, and it expects that figure to triple by 2024, giving it more subscribers than Netflix. Disney controls Marvel, Lucasfilm, and Pixar and has a lot of archival material and intellectual property, which attracts long-term investment.
#9. American Express
The American Express Company operates as a global leader in payment services. It gives people access to financial tools that improve their lives and help businesses thrive. Credit cards, business credit cards, travel credit cards, premium credit cards, travel insurance, and health insurance are all examples of the kinds of financial goods available.
With a $94 billion market valuation and $4.06 in earnings per share, this financial services stock is a solid investment. With a 52-week low of $67 and a high of $138.13, it shows a wide range of price movement. The dividend yield for American Express is $1.72 per share each year. More than 1.1 million shares are traded every day, and the company made $30 billion in 2019.
#10. Cisco Systems
Over the past few years, Cisco has been adding new features to its services platform, like conversational AI for its user interfaces, to make it better and better. Also, Cisco is an engaging part of our blue-chip businesses list due to the aforementioned factors (the continuing need for data centers and the impending 5G upgrades).
How to Invest in Blue Chip Stocks
Investors should do their own homework on the top-performing firms and then talk to an investment advisor or other expert advisor before making any stock purchases. Annual and quarterly reports are the best way to find out how the stock is doing and what changes have been made to the management. By looking at how the company has done over the past 10 years, you can see how dividend payments have changed and how much money it has made. By looking at a company’s long-term performance trend, you can get a good idea of how well it can handle boom and bust times. Find out about and evaluate a few good stocks. Then, based on your financial goals, decide whether or not to buy them. Choose a few blue chip stocks to diversify your portfolio, as recommended by the Securities and Exchange Commission.
Also, you can buy a single stock through a brokerage or a group of stocks through a mutual fund or an exchange-traded fund. If you want to buy stocks through a brokerage, you have the option of using either an internet broker, a full-service broker, or a discount broker, depending on how much assistance you need. After opening an account with the broker and sending in the necessary paperwork, you’ll have to pay an initial deposit. After deciding how many shares of a certain stock you wish to purchase, you can submit your initial buy order.
Is Investing in Blue-Chip Companies Risky?
No, investors sometimes feel more comfortable putting their money into blue chip stocks due to their established reputations for steady growth and consistent performance. Although blue chip stocks are safe investments, they won’t likely outperform those with a higher degree of risk. Also, read Chip Brands: 2023 Top Most Popular 21 Brands.
How Do You Know if a Stock Is a Blue Chip?
Blue chip stocks typically share these characteristics: large capitalization in the market. A company’s size and worth are evaluated by its market capitalization. Generally speaking, blue-chip stocks are large-cap equities, or those with a market capitalization of $10 billion or more.
What Are the Benefits of Blue Chip Stocks?
As a result of these benefits, many investors opt to own blue-chip stocks in their portfolios. Here are some of the most important things you can get out of a well-balanced investment portfolio that includes blue-chip stocks:
#1. Possibility of Reasonable Profits
Blue-chip companies are usually good investments because they have been around for a long time and are making money. Despite the economic uncertainty, blue-chip corporations have historically outperformed their peers.
#2. Low Risk
Financially stable and with a solid track record of making debt payments, blue chip stocks are a safe investment for investors. They will most likely not go bankrupt due to this factor. This makes investing in their stock a safer bet than the stock of more recent startups with higher levels of debt, shorter credit histories, and lower levels of capital.
#3. Dividend Payments
Most blue chip stocks have been profitable for quite some time, and as a result, many of them pay dividends to their shareholders. A company’s dividend is a distribution of its earnings to its shareholders at regular intervals. Dividends are usually distributed on a monthly, quarterly, semiannual, or annual basis.
In general, blue-chip stocks have strong fundamentals, including stable financials, growing cash flows, solid business strategies, and a track record of dividend increases. As a result of their consistent performance and long histories of success, blue chip stocks are widely regarded as some of the safest stock investments.
Therefore, while blue chip companies would still experience losses if the stock market as a whole enters a negative phase, it is expected that they will have less volatility than smaller growing companies and would also be among the first to recover when the market turns around.
Blue Chip Stocks FAQs
What is the safest blue-chip stock?
Investors are now looking for the safest blue-chip stocks to purchase. This indicates that less money is going into unprofitable expansion investments and more is going to tried-and-true companies. One of the safest blue chip stocks available is Microsoft.
Are Blue-Chip Stocks Good for Passive Investors?
Blue chips are less volatile than other equities due to their stability. They may be suitable investments for those who want their money to grow steadily without watching the market or trading often.
What are the four types of stocks?
- In the stock market, growth companies stand out. The market is currently extremely hungry for growth enterprises.
- Speculative stocks. Those businesses make no sense on a fundamental level.
- Blue chip stocks. Organizations like these have been around for decades, if not millennia.
- Stocks that are limited in their range.
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