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Blue chip stocks offer a steady return and minimal volatility to investors. While there’s no set list of companies that are considered blue chip stocks, you can find them in industries that include technology, banking, oil, manufacturing and business.
The phrase itself comes from the game of poker, where the blue chips are worth the most money. In simple terms, blue chip stocks are the best of the best. There’s no specific qualifications for a blue chip stock, but generally speaking, they’re major companies that have had a solid financial track record spanning many years. These kinds of companies tend to be safer and less volatile than other stocks and often pay a dividend. When you think of a specific industry, the blue chips are frequently the brands that dominate their market.
During a stock market crash, a recession or market volatility, you’ll often hear analysts suggest buying blue chip stocks. The reasoning here is that major companies are more likely to weather a storm, thus their impacted stock prices are expected to rise after a crisis.
Some of the typical characteristics of a blue chip company include:
There’s no official list of blue chip stocks, but the 30 companies listed in the Dow Jones Industrial Average are a good place to start. These are often regarded as some of the most valuable and reliable heavyweight companies in the country. However, many others listed on the New York Stock Exchange or the NASDAQ would also qualify as blue chips. They’re all companies with a history of providing steady returns and minimal volatility to investors, and they’re spread across a range of market sectors, including:
The FAANG tech stocks have earned a reputation for driving much of the success of the big bull run throughout the 2010s; FAANG stands for:
Other top blue chip tech stocks include:
Companies in the financial sector make up a portion of the blue chip classification. These companies tend to have a history of providing large dividends and include the major banks and credit card companies, including:
The products and brands that many Americans across generations have grown up knowing sustained growth and success, including:
As drilling and mining is a cyclical industry, natural resource companies have the potential to provide high capital growth. But can have a reputation for underperforming when the mining industry experiences a downturn. Having said that, companies that have diversified businesses firmly established across the nation include:
Retailers tend to offer medium-sized dividends to shareholders, and are popular choices among investors. Also, popular restaurant chains have loyal followings that provide consistent profits, especially McDonald’s. Blue chip stocks in this sector include:
For instant diversification, you can buy a basket of blue chip stocks in a single transaction through an index fund or exchange-traded fund (ETF). Here are some popular examples:
Many successful long-term investors like Warren Buffett have advocated for investing in companies that you believe will be around for a generation or two. The kind of stocks that fit that description are the blue chips that continue to grow and profit year after year. This translates to consistently higher stock prices and consistent dividend payouts.
It’s a versatile combination that allows you to either reinvest those dividends and compound the earnings over time or take the dividends as a stream of passive income. On top of that, holding investments for the long term also has some significant tax advantages.
As for intangible benefits, investing in a company you can rely on for the long haul takes away much of the anxiety or worry an investor feels about the volatile stock market.
It depends on your investment goals. Blue chips tend to be a long-term investment, or to provide an ongoing income stream through dividends. While blue chip stocks tend to be a safer investment, their value doesn’t usually rise much over a short time unless you can scoop them up at a discount during a downturn.
Investing in riskier businesses, or small caps, earn you higher returns with a faster turnaround. When you invest in a small company, you’re betting that it will become the next big thing and multiply your investment as it quickly grows and scales up its revenues.
There are two ways to earn money from stocks: Capital growth in the value of shares over time by buying low and selling high, and earning an income from dividends. Dividends are more often paid out by blue chip stocks, which is part of what makes them so attractive.
A dividend is a company’s way of distributing its profits to shareholders. Dividends are most commonly paid quarterly, though some companies pay them twice a year, annually or irregularly. However, not all companies pay dividends to shareholders and instead invest all of its profits back into the company.
Larger, well-established companies tend to pay dividends. Investors use them to provide a regular, ongoing source of income. This offers you security and stability for the future, while also benefiting from the company’s long-term capital growth. There’s a class of blue chips known as the dividend aristocrats that not only consistently pays dividends but often raises the percentage dividend payout.
Investing in the stock market is never risk-free, but blue chip stocks are historically less volatile. If you’re interested in buying stocks, compare investing platforms to find one with fees and minimums that match your investing goals.
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