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What are Singapore’s blue chip stocks?
We explain why investing in blue chip stocks can be a good strategy.
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The term is a little vague, but generally speaking, blue chip stocks are major listed companies that have had a good 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.
During a stock market crash, a recession or market volatility, you’ll often hear analysts suggest blue chip stocks to buy. The reasoning here is that major companies are more likely to weather a storm and hence their impacted stock prices are expected to rise again after the crisis ends.
What are blue chip stocks?
Some of the typical characteristics of a blue chip company include:
- Large company
- Good financial track record
- Older companies
- Pays dividends
What are Singapore’s blue chip stocks?
There’s no official list of ‘blue chip’ stocks – the closest we have is the list of companies on the Straits Times Index (STI), a list of Singapore’s top 30 companies by market capitalisation. It includes companies with a history of providing steady returns and minimal volatility to investors. These companies are spread across a range of market sectors, including:
Real estate
Companies in Singapore’s real estate sector make up a large portion of the top 30 stocks. These companies tend to have a history of providing large dividends and include Ascendas Reit, CapitaLand, CityDev and Frasers L&C Tr.
Banking and financial services
The banking and financial market has the potential to provide high capital growth. Major Singapore banks such as DBS, OCBC Bank, and UOB all feature in the STI.
Retail sector
Retailers tend to offer medium-sized dividends to shareholders, and DairyFarm, ThaiBev and Wilmar Intl are popular choices among investors.
Should you invest in blue chips or small caps?
While blue chip stocks tend to be a safer investment, they don’t usually rise considerably in value over a short-time frame unless you can scoop them up at a discount during a downturn. This means that blue chips are long-term investments or used to provide an ongoing incoming through dividends.
Those looking to make a quick buck by striking it lucky invest in riskier but smaller companies called ‘small-caps’. When you invest in a small company you’re betting that it will be the next big thing and turn that pocket money into millions.
It can be tempting to take a punt on speculative companies. These are companies that do not have a long, well-established history of providing stable returns to investors. They’re also typically located outside the list of the top 100 companies in Singapore. These are sometimes called ‘growth stocks’ and the smallest are penny stocks.
Blue chip stocks vs penny stocks
Blue chip stocks. A blue chip stock is usually an older, well-established company that has a reliable history of weathering against tough times and of growing profits. Examples include: CapitaLand, ComfortDelGro, Keppel Corp and SIA.Penny stocks. Penny stocks tend to trade for less than $5 and are also called micro-cap stocks or small-cap stocks. The idea is to buy them for a low price with the promise of big profits later. They’re generally riskier, speculative stocks.
The benefits of dividends
There are two ways to earn money from stocks. Not only can you benefit from capital growth in the value of stocks over time, but you can also earn 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. Many companies listed on the SGX pay dividends twice a year, including a smaller “interim” dividend and a larger “final” dividend. However, not all companies pay dividends to shareholders, and will instead invest all of their profits back into the company.
Dividends tend to be paid by larger, well-established companies on the SGX and you can use them to provide a regular, ongoing source of income. This offers you security and stability for the future, while at the same time giving you a chance to benefit from the company’s long-term capital growth.
How to buy blue chip stocks in Singapore
- Choose a stock trading platform. If you’re a beginner, our table below can help you choose.
- Open your brokerage account. You’ll need your ID, bank details and CDP account (you’ll need to open one if you don’t have it)
- Confirm your payment details. You’ll need to fund your account with a bank transfer, debit card or credit card.
- Find the stocks you want to buy. Search the platform and buy your stocks. It’s that simple.
Compare stock trading platforms to buy blue chip stocks
Tips when choosing stocks
Make a plan
- Before you start buying or selling stocks, consider exactly what you want to achieve with your stock portfolio and in what timeframe. Once you have a plan in place you can then choose your investments accordingly.
Don’t panic
- Stock markets fluctuate all the time – look at historical graphs charting the performance of the SGX for proof of this – so don’t panic at the first sign of stock prices heading south. Stick to your plan and ride out any dips or down periods.
Consider your investment goals
- Are you looking for stocks to provide capital growth or to generate income? Smaller companies tend to focus more on growth and therefore reinvest profits into their business, while larger companies tend to pay dividends to their shareholders.
Don’t forget about dividends
- Dividends can provide a stable source of ongoing income during uncertain financial times. Look at companies with a history of paying high dividends to shareholders to see whether they could provide an attractive investment option for you.
Choose companies wisely
- Blue-chip stocks, also known as large-cap companies, tend to offer secure, stable returns and a minimal level of risk. Smaller companies outside the top 100 companies on the SGX may provide larger growth potential, but they also come with a much higher level of risk attached.
Research before you buy
- Looking at a company’s annual reports, earnings and historical performance will help you form a clearer picture of whether it is a sound investment. If you’re using an online stock trading platform, you may also be able to access research reports and buy or sell recommendations for various companies.
Know what long-term means
- In order to ride out any periods of market volatility and enjoy the maximum returns, you typically need to look at an investment time frame of 7 to 10 years when choosing stocks.
Consider other investment options
- Depending on your investment goals and appetite for risk, you may also want to consider other options, such as exchange traded funds (ETFs). ETFs are bought and sold on the SGX just like stocks, but they allow you to gain exposure to a stock index or other group of underlying assets.
Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, CFDs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for all investors. Trading CFDs and forex on leverage comes with a higher risk of losing money rapidly. Past performance is not an indication of future results. Consider your own circumstances, and obtain your own advice, before making any trades.
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