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.
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.