Investors looking to invest in reputable companies will often gravitate toward what are referred to as “blue-chip” stocks. Blue-chip stocks tend to be household names in the investing community, and by definition have stellar reputations and consistently strong financial results.
What makes a stock a blue-chip?
There’s no single quality that makes a stock a blue-chip stock, rather a collection of attributes that together cause analysts and investors to consider a company to have this distinction. Blue-chip stocks tend to represent companies who have dominated their respective industries for decades, if not longer. In good times and bad, blue-chip companies provide a reliable return to investors.
Large market capitalization
A market cap is the means by which we quantify the size and value of a company. Blue-chip stocks tend to be large-cap stock, which translates into a market valuation that exceeds $10 billion.
Blue-chip companies are dependable. Their growth is consistent over time and the prognostications are equally good. They lack the sizzle and pop of sky-rocketing start-ups, but that’s only because they’re the big kids on the block.
Component of a market index
As can be expected, blue-chip stocks are in the major indexes: the S&P 500, the Dow Jones Industrial Average, and the NASDAQ-100.
Many, but not all, blue-chip stocks pay dividends, which are a portion of a company’s profits owed to investors.
Are blue-chip stocks high risk?
Blue-chip stocks are not high risk, so they’re popular among investors with lower risk tolerance. While blue-chip stocks aren’t bulletproof, their history of resisting market downturns makes them an appealing choice for many investors.
Why invest in blue-chip stocks?
Aside from their reliability, blue-chip stocks are appealing because they do tend to pay consistent dividends. This can create a reliable income stream.
Blue-chip stocks tend to be stable because of their established foothold within whatever industry they dominate. A company like McDonald’s isn’t going away, even if it encounters controversy, because it has the resources and the cultural cache to withstand hardship and scrutiny.
Blue-chip stocks tend to pay reliable dividends, which can be expected from companies that are captains of their respective fields.
What are some examples of blue-chip stocks?
- Alphabet (GOOG, GOOGL)
- Amazon (AMZN)
- Apple (AAPL)
- Bank of America (BAC)
- Coca-Cola (KO)
- McDonald’s (MCD)
- Microsoft (MSFT)
- Visa (V)
- Walmart (WMT)
What are blue-chip funds?
A blue-chip fund is a bundle of blue-chip stocks that are professionally arranged like a fine bouquet. These index funds or exchange-traded funds (ETF) mimic an index, which is a portion of the stock market. Since blue-chip stocks have large market caps, these funds are a good way to gain access to blue-chip stocks.
How do I invest in blue-chip stock?
You can purchase blue-chip stocks through online brokerage firms or gain access to them through blue-chip funds. Given the high price-tag per share for some blue-chip stocks, some investors are opting to buy into these companies through fractional trading offerings. Public, for example, slices 1,000s of stocks—many of them blue-chip—into small pieces, making them more accessible to the average investor.
A blue-chip stock is a great way to generate a reliable income stream. Today, thanks to fractional investing opportunities, a far greater number of investors can afford to buy into them. While lacking the wow-factor of many start-ups, blue-chip stocks nonetheless can deliver a significant return on investment and are an important component to many investors’ portfolios.