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.
In this article, we will learn about blue-chip stocks, how they differ from blue-chip funds, and why they can be valuable to your investment portfolio.
Let’s get in deep!
What are Blue-Chip stocks?
Blue-chip stocks are shares of well-established, financially stable companies known for reliable performance and strong dividends. They tend to be less volatile, have a history of consistent growth, and are leaders in their industries, making them a popular choice for long-term investors seeking stability and income.
These types of stocks regularly pay dividends to investors and possess other indicators of success. Some examples include Apple, Sony, Disney, and General Electric.
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.
1. 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.
2. Growth history
Blue-chip companies are dependable. Their growth is consistent over time, and their 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.
3. 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.
4. 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 generally considered low-risk investments compared to other types of stocks. They represent well-established companies with a long history of stable performance, consistent growth, and often reliable dividend payments.
No investment is entirely risk-free, but blue-chip stocks are often noted for their capacity to withstand market fluctuations and economic downturns. However, they may offer lower returns compared to higher-risk investments like startups or small-cap stocks.
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.
1. Stability
Blue-chip stocks tend to be stable because of their established foothold within whatever industry they dominate. A company like McDonalds isn’t going away, even if it encounters controversy, because it has the resources and the cultural cache to withstand hardship and scrutiny.
2. Dividends
Blue-chip stocks tend to pay reliable dividends, which can be expected from companies that are captains of their respective fields.
3. Consistent returns
These stocks often provide steady growth and predictable returns over time, which can appeal to long-term investors.
4. Lower risk
Blue-chip stocks are typically less volatile than smaller or newer companies, reducing investment risk, especially in uncertain markets.
5. Strong market position
Blue-chip companies dominate their industries, giving them a competitive advantage and making them more resilient during economic downturns.
Blue Chip Stocks examples – Top industry leaders
Examples of blue-chip stocks are crucial for understanding the market leaders who set the standard for stability and performance. Here are some notable blue-chip stock examples that represent top industry leaders you might consider for your investment portfolio.
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.
Benefits of investing in Blue-chip funds:
Offering consistent and reliable returns over the long term.
Providing regular dividend payouts from established companies.
Reducing investment risk through diversification and investment in financially stable companies.
Benefiting from the expertise of professional fund managers who select and manage the portfolio.
Ensuring steady capital appreciation over time.
Experiencing less dramatic price swings compared to more speculative investments.
Allowing for the reinvestment of dividends to compound returns.
Providing a sense of security by investing in well-established industry leaders.
You can purchase blue-chip stocks through online brokerage firms like Public.com 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.
How to buy Blue-Chip stocks on Public.com?
1. Sign up for a brokerage account on Public
You can sign up for an account on our website or download the Public app from the App Store (iOS) or Google Play Store (Android).
2. Add funds to your Public account
There are multiple ways to fund your Public accountfrom linking a bank account to making a deposit with a debit card or wire transfer.
3. Choose how much you’d like to invest in blue-chip stocks
Navigate to the Explore page. Then, search for the blue-chip stock of your choice in the search bar. When you see the blue-chip stock appear in the results, tap it to open up the purchase screen.
4. Manage your investments in one place
You can find your newly purchased blue-chip stock in your portfolio alongside the rest of your stocks, bonds, options, crypto, ETFs, and Treasuries.
Maximizing income with Blue-Chip stocks
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.
