What are blue-chip stocks?

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.

These types of stocks regularly pay dividends to investors and possess other indicators of success. Some examples include Apple, Sony, Samsung, and General Electric.

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.

Growth history

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.

Dividends

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.

Stability

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.

Dividends

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.

Bottom line

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.

Pam Velazquez is Senior Marketing Manager at Public.com.

The above content is provided is paid for by Public and is for general informational purposes only. It is not intended to constitute investment advice or any other kind of professional advice and should not be relied upon as such. Before taking action based on any such information, we encourage you to consult with the appropriate professionals. We do not endorse any third parties referenced within the article. Market and economic views are subject to change without notice and may be untimely when presented here. Do not infer or assume that any securities, sectors or markets described in this article were or will be profitable. Past performance is no guarantee of future results. There is a possibility of loss. Historical or hypothetical performance results are presented for illustrative purposes only.

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