What are Blue Chip Stocks?

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Last updated November 24, 2019

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March 25, 2016

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Blue chip stocks are the stocks of large and stable companies that have established themselves in the economy. For example, in 2016, generally accepted blue chip companies in the stock market include Ford, Target, Mattel and Wells Fargo. Read on for the lowdown on blue chip stocks and why they are worth investing in.

There is no comprehensive list of blue chip stocks, as even market analysts sometimes disagree on the criteria. Blue chip is a state of mind in a way, but these stocks do share some distinct qualities.

  • Proven, established companies: Blue chip companies have a stable and impressive track record. Companies on the S&P 500 Dividend Aristocrats Index satisfy this requirement for most people.
  • Sound financials: One tenet and attractive feature of blue chip stocks is their stability. To this end, blue chip companies tend to pay dividends and possess good bond ratings. Blue chip companies also have strong cash flows, smart business models and consistent growth.
  • Plentiful resources: Blue chip companies have lots saved and lots to give; some market analysts set a minimum market capitalization of $10 billion.

Blue chip stocks are stable, meaning they typically hold their own, even in turbulent economic times. While many investors don’t make huge, immediate earnings off them because of their stable pricing, these stocks do pay dividends to shareholders. These dividend payments also safeguard against the negative effects of inflation.

Blue-chip stocks are an essential component of many investors’ portfolios since they combine dividend income and stable growth with substantial peace of mind. They are an ideal springboard for the beginning stages of investing and remain popular with investors who like to hold the same stocks for decades.

Before You Invest in Blue Chip Stocks

Blue chip stocks are stable, but they are still an investment, and any stock market investment carries some degree of risk. So, as you assess the various blue chip stocks you might be interested in, you should still read the company’s annual and quarterly reports as well as assess tax requirements if you want to invest in an overseas company. You may want to start gradually, purchasing only a few stocks per month and working your way up to a broader portfolio.

Remember that, in some cases, it is matter of opinion whether a stock is blue chip. In general, look for companies that have seen dividends increase for the past 10 consecutive years — or for the past 20 years if you want to play it really safe. If the idea of investing in blue chip stocks is appealing to you, check out our top rated online investing sites for beginners.

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