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What are South Africa’s blue chip shares?

We explain why investing in blue chip stocks can be a good strategy.

Finder is committed to editorial independence. While we receive compensation when you click links to partners, they do not influence our opinions or reviews. Learn how we make money.

If you’re interested in investing in the stock market, you’ve probably come across the term ‘blue chip’ stocks. You may be wondering what they are and how you can invest in them.

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 share prices are expected to rise again after the crisis ends.

What are blue chip shares?

Some of the typical characteristics of a blue chip company includes:

    • Large company
    • Good financial track record
    • Older companies
    • Pays dividends

What are South Africa’s blue chip shares?

There’s no official list of ‘blue chip’ stocks – the closest we have is the list of companies on the JSE Top 40 index, a list of South Africa’s top 40 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:

Banking and financial services

Companies in South Africa’s financial sector make up a large portion of the top 40 stocks. These companies tend to have a history of providing large dividends and include financial services such as FirstRand Limited and Old Mutual as well as major banks: Standard Bank, Absa, and Nedbank.

Resources sector

As mining is a cyclical industry, resources companies have the potential to provide high capital growth, at the same time have a reputation for underperforming when the mining industry experiences a downturn. Having said that, companies such as BHP Billiton, Anglo American and Kumba Iron Ore Limited all feature in the JSE Top 40 index.

Retail sector

Retailers tend to offer medium-sized dividends to shareholders, and Woolworths, Richemont and Shoprite 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 South Africa. These are sometimes called ‘growth stocks’ and the smallest are penny stocks – those that trade at less than R10 per share.

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: BHP, Naspers, Sanlam and British American Tobacco.

Penny stocks. Penny stocks tend to trade for less than R10 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 shares. Not only can you benefit from capital growth in the value of shares 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 JSE 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 JSE 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 shares in South Africa

  1. Choose a share trading platform. If you’re a beginner, our table below can help you choose.
  2. Open your account. You’ll need your ID, bank details and tax file number (TFN).
  3. Confirm your payment details. You’ll need to fund your account with a bank transfer, debit card or credit card.
  4. Find the shares you want to buy. Search the platform and buy your shares. It’s that simple.

Compare share trading platforms to buy blue chip stocks

Name Product Number of Stocks CFDs Shares Available Markets
eToro
2,000+
Yes
Yes
Worldwide with exception.
CFD Service. Your capital is at risk.
Get commission-free US stock trading plus access to forex, cryptocurrencies, ETFs, and commodities with the world’s leading social trading and investment platform.
Plus500
2,000+
Yes
No
Worldwide with exception.
CFD Service. Your capital is at risk.
Trade over 2,500 financial instruments with one of the largest CFD providers in the world.
Prime XBT
Access to global markets
No
Yes
US, IN, ES, JP, AU, UK, CN, DE, CA, CH, MX, NZ, CH, HK, FR
CFD Service. Your capital is at risk.
Trade cryptocurrencies and traditional financial instruments such as commodities, indices, and forex across 50+ markets.
Zacks Trade
Access to global markets
No
Yes
US, CA, MX, AUT, BEL, FR, DE, IT, NL, ES, NO, SE, UK, CH, HK, JP, SG, RU, AU
CFD Service. Your capital is at risk.
Trade stocks, bonds, ETFs, options, and more on 90+ international exchanges. Offers customizable trading platforms with over 120 technical indicators for your charting needs.
Eightcap
Access to global markets
Yes
No
UK, DE, AU
CFD Service. Your capital is at risk.
Trade a wide variety of instruments on the award-winning MT4/5 platforms with this Australia-based CFD and forex broker.
Firstrade
Access to US stocks
No
Yes
US
CFD Service. Your capital is at risk.
Enjoy $0 commission trading for stocks, options, funds, and more with this internationally-acclaimed discount broker.
CM Trading
N/A
Yes
No
US, FR, DE, UK, AU, ZA, CH. HK, JP, ES, NL, IT
CFD Service. Your capital is at risk.
Licensed international brokerage and CFD provider that offers advanced trading solutions designed for both new and experienced traders alike.
Exness
N/A
Yes
No
CH, VN, TH, PH, SG, ID, IN, UAE, ZA, SA, EG, BR, CR, MX
CFD Service. Your capital is at risk.
Enjoy fast trade executions at competitive fees with this award-winning retail forex broker.
Interactive Brokers
Access to global markets
No
Yes
US, MX, RU, ES, UK, DE, IL, HK, SG, IN, KR, AU, CH, HU, CA
CFD Service. Your capital is at risk.
Take advantage of low trading fees, multiple platform support, and an extensive list of asset classes across global markets, including stocks, options, futures, forex, bonds, and funds.
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Compare up to 4 providers

Tips when choosing stocks

Make a plan

  • Before you start buying or selling shares, consider exactly what you want to achieve with your share portfolio and in what timeframe. Once you have a plan in place you can then choose your investments accordingly.

Don’t panic

  • Share markets fluctuate all the time – look at historical graphs charting the performance of the JSE for proof of this – so don’t panic at the first sign of share prices heading south. Stick to your plan and ride out any dips or down periods.

Consider your investment goals

  • Are you looking for shares 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 40 or 100 companies on the JSE 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 share 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 shares.

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 JSE just like shares, but they allow you to gain exposure to a share index or other group of underlying assets.

Finder is committed to editorial independence. While we receive compensation when you click links to partners, they do not influence our opinions or reviews. Learn how we make money.

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