What is Blue-Chip Stocks? Reasons Why You Should Consider Investing in The Blue-Chip Stocks
Blue-chip stock is a type of stock that comes from a well-established company or a corporation. The company or the corporation must have a good reputation in terms of financial stability, reliability, and quality delivery of goods or services.
The Blue-chip stocks companies are usually the market leaders in their respective sectors. They have market capitalization and billions of dollars’ in profits.
The blue chips usually have a strong and impressive track record with consistent payment of dividends, which is they are popular among a lot of investors. If you are intending to invest in stocks, consider blue chip stocks as your starting point. Examples of blue-chip stocks are Coca Cola Co., Boeing Co, or Amazon Co.
How Does the Blue Chip Stocks Work?
The term blue chip is derived from poker, whereby the blue chips are the most expensive. The blue chips stocks have a long reputation of paying high and stable dividends compared to other players in the industry. Generally, blue chips stocks are components of reputable market indexes such as the Nasdaq-100 of the US, FTSE Index of the UK, and the TSX-60, Canada.
The size of the company to qualify as a blue chip has never been established. However, the market capitalization of $5 billion is the general accepted benchmark. Even in bad economic times and high inflation, blue chip stock companies have remained steady.
The blue chip stock companies and corporations have the following features:
1. Great Market Capitalization
The blue chip stocks have a large-cap stocks which is usually a valuation of more than $10 billion. The market-cap is the value and size of the company.
2. The Growth History of the Company
The blue chips usually have a proven and steady track record of reliable and sustained growth history and great future prospects. They are well established and the growth of the stock might not as flashy as that of the upcoming tech stocks.
3. Payment of Dividends
Blue-chip stocks pay dividends to the investors, but some do not. The corporations and companies that pay dividends are already established. Which means they do not need to invest the revenue for the growth of the entity, hence they make regular payment of the dividends.
4. Market Index Component
Major market indexes such as Dow Jones Industrial Average, NASDAQ 100, and S&P 500 are Blue-chip stocks.
Why Is Blue-Chip Stock the Right Investment?
Investing your money in the blue-chip stocks is one of the best decisions you can make as a stock investor. You are guaranteed of profits occasionally. The blue chip companies are well established and listed in the global stock exchange. Here are reasons why you should consider investing in Blue-Chip Stocks:
1. You Earn Dividends Consistently
Most blue-chip companies have been performing exceptionally well over the years. The great performance and growth is attributed to strong management and sales.
It gets a stable income and profits which are distributed to the shareholders, investors, employees and other stakeholders.
The good performance over the years gives the shareholders the confidence that the company will remain so for a long time. You will earn dividends for years to come.
2. The Dividends Are Paid on Time
One of the factors that measures the performance of a company is, it pays its employees, shareholders, and investors on time. If a company is doing well with its income, paying off dividends will not be a problem. The blue-chip companies have a steady flow of income and pays the dividends on time which is why the stocks are a great investment.
3. Strong Financial Capabilities
When a corporation or company is regarded as a blue-chip, it means it has strong financial aspects. Such a company has an efficient operating cycle with an ideal debt-equity ratio and good financial ratios. Therefore, stocks from blue-chip companies are less volatile, lower risks, and have the ability to mitigate the risks when they arise. It does not mean that blue-chip stocks are risk-free. They have well laid strategies that enable them to bounce back whenever they experience market downturns. Although these types of stocks are expensive as compared to ordinary stocks, they are worth the investment.
4. Established Brand
The brands from the blue-chip companies are well established in the market, which gives give them a competitive advantage over the new emerging brands. Factors that make the blue-chip companies market leaders are, fair prices, availability of the products, easy distribution, and goodwill.
Popular Blue Chip Stocks You to Consider Buying Stocks
· Visa- Another top blue-chip company to buy stocks, is NYSE: V. Visa is a multi-national global payment method specializing in electronic payment in over 200 countries. During the Q3 of 2021, the company reported transactions worth $42.6 billion and a year growth of 39% making it a good company to invest.
· Amazon- Amazon (NASDAQ: AMZN is a multinational e-commerce company that deals with cloud computing, e-commerce, and digital streaming. Despite the pandemic affecting the turn-over for most businesses, Amazon has been performing well throughout the pandemic period. In the Q2 of 2021, AMZN made a net sale of $113 billion, which is a 27% increase from the same period in the previous year.
· Coca Cola- The company has been in operating for many years now. The beverage company is a multinational that operates in more than 200 countries. It has good track record for dividend growth. During the Q2 of 2021, the company with a Tracker of NYSE: KO had a EPS of $0.68 which is way above the market consensus of $0.12.
· Johnson & Johnson- listed as NYSE: JNJ is a multinational headquartered in America. It deals with consumer products, medical products, and pharmaceuticals. In the Q2 of 2021, the company made approximately $164 million from the production of vaccines. Due to its stability, it is a great company to invest.
· Walt Disney-The Walt Disney (NYSE: DIS) is one of the largest American multi-national in the media and entertainment industry. In the Q2 of 2021, the company had a net income of $912 million up from $468 million the previous year. NYSE: DIS is one of the best blue-chip stock with a huge potential for good returns.
· Apple- Another blue-chip company worth your investment is the NASDAQ: AAPL. It is based in the US dealing with Electronics and software. Apple is the first company in the US to hit the $2 trillion mark in the stock market. In the Q3, 2021, AAPL had a growth of 36% year-over-year growth and a revenue of $81.4 billion.
· Microsoft- Microsoft is an American Tech company that deals with software, electronic devices, and other tech services. The company has been performing consistently well over the years and it is safe for investment. In the Q4, 2021, Microsoft (NASDAQ: MSFT), had a net income of $60.7 billion, which is an EPS of $2.17.
Other Blue-chip stock companies you should consider buying their stock are:
· JPMorgan Chase & Co.
· Alibaba Group
Tips for Investing in Blue-Chip Stocks
1.The Blue Chip Stocks for beginners- When you are the first time investor, it is always advisable to check the best stocks to invest in. It is the same for the blue-chip stocks. You should consider the stocks that have a good history of sales and profits. Generally, the blue-chip companies are well established with strong market prospects.
However, some of these companies perform better than others. You have to consider the value of the company, not just the profits but also the assets. When the economic times are bad, companies with more assets are unlikely to suffer. Hence consistent of good earnings on your stocks.
2. Talk to an Investment Advisor
Before buying stocks, you should first take your time to do a thorough research on different companies. However, it is best to talk to a professional investment expert. A professional will help to review the financial positions, and assets of the prospect company. Also, look the dividend payment trends over the last decade.
The long term performance of a company should be a key consideration as it will give you a clear indication of the cycle of the company’s performance during the good and the bad seasons.
Evaluating the stocks coupled with your investment goals will help you choose the right blue-chip stocks to invest. In addition, you can consider diversification, whereby you invest your money in more than one blue chip company. It gives you a bigger return on investment.
3. Consider Working with a Brokerage Firm
You should consider the services of the brokerage firm when investing in stocks. However, you can still buy the stocks individually. The benefits of using a brokerage firm is that it makes the process much easier for you. In addition, a brokerage will advise you on the best blue-chip stock to invest.
The Blue-chip companies have the best valued stocks. The companies have a huge market gap, a good performance history, and strong balance sheets. Investing your money on the blue-chip means you will receive a constant dividend which is also paid on time. Even in volatile times, you are almost guaranteed of stable returns.