What are Blue Chip Stocks?
Blue-chip stocks are large and of industry-leading companies. companies at the top end of the stock market. These companies have often been around for decades or longer, have solid track records and are often industry leaders.
The term ‘blue chip’ was first used to describe high-priced stocks. Today, blue-chip stocks don’t necessarily refer to stocks with a high price tag, but more accurately to stocks of high-quality companies that have withstood the test of time.
Most investors view blue-chip stocks as “safe” stocks.
Blue-chip stocks offer a stable record of significant dividend payments and have a reputation for sound fiscal management. The expression is thought to have been derived from blue gambling chips, which is the highest denomination of chips used in casinos.
Since these industry-leading companies are often mature businesses that make consistent profits, they often pay out a dividend to shareholders each quarter. That can be a boost to those looking for an income from their stock portfolio, such as people who are retired.
You'll need to use your investment process to analyze the company and assess its future potential. While they may be a better breed of company, blue chips are still subject to the same factors that can rattle the whole market. That means they can decline, sometimes precipitously, if bad news hits the headlines. Even the best blue chips do poorly from time to time, especially during recessions. So, that's one reason you need a diversified portfolio of companies, not just one blue-chip investment.