What Are Blue Chip Stocks?

Blue chip stocks are assets issued by the leading international companies and organizations with a flawless reputation and excellent performance over decades. As a rule, blue chip stocks refer to some of the biggest companies that are well-established and long-running in addition to stable financial health. They appear to be the number 1 choice for the majority of investors hunting down stable dividends to be paid off in the long run.

Blue Chip Stock

Generally, these stocks are issued by the top three enterprises that are leaders in a specific niche. For example, some of the most well-known blue chip stock companies include Coca-Cola, IBM, Boeing, and others. In this article, we will discuss how safe blue-chip stocks are and how they may help to keep your portfolio diversified.

What Is Blue Chip Stock and How Does It Work?

Although the majority of investors look for blue chip stock to generate long-running dividends, it is not the only crucial factor that makes an asset a blue chip. The term was borrowed from poker terminology (where the blue color is considered the most expensive), although investing has nothing in common with gambling.

These types of shares appear to be a part of the most trusted market averages or indices (for example, S&P 500, TSX-60, FTSE, and some more). Experts still argue on how a company can obtain the blue-chip status. Some consider a market capitalization that is supposed to exceed $5 billion. Others say that companies of any size may refer to the group of the most reputable organizations. There are no specific requirements or guidelines. In other words, both huge and mid-enterprises should be taken into account as potentially profitable ways to invest funds.

How to Recognize Blue Chip Stocks

One should think of these assets as something that not just makes a good impression but also something to back it up. It is the same as bringing a reliable and responsible boyfriend/girlfriend to meet your parents.

Blue-chip stocks issuers have proved to be reliable and stable over the years. Most of them managed to overcome disastrous financial and economical crashes and are still able to perform great results. No matter what company you choose for investing, all types of blue-chip stocks have three major factors in common:

  • Enhanced Market Capitalization. It is used to evaluate the size of the company as well as to measure its value. Generally, a good market value for blue-chip companies starts from $5 billion.
  • Historical Growth. Leading companies generally ensure reliability and scalability provided through rapid historical growth. This fact also guarantees potentially profitable future perspectives.
  • Dividends. It appears that not all blue-chip companies pay dividends to stockholders. However, most of them do. As a rule, they are provided by mature and time-tested organizations that do not require additional investment in their development and growth.

How Safe Are Blue Chip Stocks?

We spoke a lot about blue-chip companies’ reliability and reputation. However, the global recession in 2008 featuring General Motors and Lehman Brothers bankruptcy showed that these organizations are not always a safe way to invest. For this reason, a diversified portfolio should rely not only on blue-chip stocks but also on mid and small-cap shares.

This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.