Blue-chip stocks are stocks of companies that are well established in quality and quantity, and considered leaders in their industry. These companies have proven over time to be reliable and survived in many market conditions. Investors rely on them for their reliability and stability.
Where did the name blue-chip come from?
The name blue-chip was borrowed from the poker card game. In poker, the highest and most valuable scoring chip has a blue color. Source: thebalance.com. Investors used this name to represent the most valuable and performing companies in a given industry.
What qualifies a stock to be a blue-chip?
There is no universal requirement for a stock or a company to be a blue-chip. However, there are guidelines and methods used to check whether a company or its stock should be a blue-chip. The following are some of these requirements.
- Consistency in earning for several years
- Proven historical payments of dividends to shareholders
- Consistently increase yearly dividend payments at a rate that is higher than the inflation rate.
- Being among the top corporations in the world with a big market capitalization
- Its bonds must be considered the best investment with a triple-A rated.
- High competitive advantages over its competitors.
- Superb balance sheet, income statement, and ratios.
- High return on equity and other investments
Best blue-chip stocks
Blue-chip companies are among the biggest in the world, and therefore, their products are everywhere. These companies are known by almost every person because of their presence in our lives. The following are some of the best blue-chip companies. Source: fool.com, nerdwallet.com
- Apple (Ticker: AAPL)
- Berkshire Hathaway (Ticker: BRK.A and BRK.B)
- Coca-Cola (Ticker: KO)
- Johnson $Johnson (Ticker: JNJ)
- Disney (Ticker: DIS)
- Amazon (Ticker: AMZN)
- Alphabet (Ticker: GOOGL)
- American Express (Ticker: AXP)
- Bank Of America (Ticker: BAC)
- Costco (Ticker: COST)
- Goldman Sachs (Ticker: GS)
- IBM (Ticker: IBM)
- 3M (Ticker: MMM)
- Home Depot (Ticker: HD)
- McDonald’s (Ticker: MCD)
- Microsoft (Ticker: MSFT)
- Nike (Ticker: NKE)
- Starbucks (Ticker: SBUX)
- Verizon (Ticker: VZ)
- Walmart (Ticker: WMT)
- Visa (Ticker: V)
Should I invest in blue-chip stocks?
Your investments will depend on your future goals, strategies, and tolerance to risks. Before you invest in blue-chip companies, you need to know why they are top performers and whether their returns are enough for you. You also need to know why other investors like these companies.
Many investors like these stocks, because they tend to compound at acceptable rates of return (8%-12%) with dividends reinvested decade after decade. Source: thebalance.com. Investors put their money in these companies and hold their positions for many years to obtain a substantial return.
Do these returns and the journey to success sound like something you can undertake? If you so, blue-chip stocks could be your next investment adventure.
However, if you think these returns are not worth the wait or you may need your money sooner than later; these stocks may not be good for you.
