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The top ASX-listed blue chip stocks to watch

The ASX offers a broad range of blue chip stocks for those investors seeking greater security alongside passive revenue.

Source: Bloomberg

What are blue chip stocks?

A blue chip stock is defined as an equity security issued by a leading company that is extremely large and well-established.

The term implies that such stocks offer a higher level of quality and safety than other investment options on the capital market.

The phrase 'blue chip' originates from the poker scene, where value of the chips is based upon their colour. Chips that are blue in colour are the most valuable, worth far more than those that come in other hues such as white or red.

Companies that are considered blue chip are invariably extremely well-known, ranking amongst the leading players within their respective sectors. They are also very large in size, with market capitalisations that run into the multiple billions.

Given that blue chip status is based upon reputation and quality, such companies have usually been in operation for many years, with reliable sources of revenue and steady dividend payments.

The chief advantages of investing in blue chip stocks include stability and resilience, with lengthy track-records of sound business performance. Their well-established positions often enables them to better weather periods of economic downturn or turmoil.

Another major advantage of blue chip stocks is that many of them are in the habit of paying regular dividends to shareholders, making them a solid source of passive income for investors.

Blue chip companies are easy to find, given their size and reputability make them the first contenders for inclusion in stock market indices designed to reflect overall market performance.

The ASX is a solid source of blue chip stock opportunities for both domestic investors in Australia and global investors that hail from other jurisdictions.

Australia is an advanced economy that enjoys a long-standing track record of excellent political stability.

The country lays claim to excellent legal and financial systems, that serve as the bedrock for its appeal as an investment destination.

In addition to underpinning economic growth, these features can bolster overall market performance by enhancing trust for investors.

The Australian stock market is especially well-known for its strong finance and resource offerings, given the disproportionate role that these two sectors play in the country's economy.

The top ASX-listed blue chip stocks to watch

Here is a list of four of the top blue chip ASX stocks to watch, for those investors keen on acquiring equity stakes in Australia's most renowned listed concerns.

Commonwealth Bank of Australia (ASX: CBA)

The Commonwealth Bank of Australia is one of Australia's big four depository institutions, and had its origins as a state-owned lender that was first founded by the Andrew Fisher Labor government in 1911.

CBA was listed on the ASX in September 1991 and fully privatised in 1996. By 2015, it had emerged as the largest listed company on the ASX, transforming into a multinational financial institution with operations spread across Asia, the US and the UK.

The bank posted a $5 billion cash profit for the first half of the financial year, just short of a record six-month profit logged the year previously.

CBA has taken the lead amongst Australia's big four bankers in shrinking its home loan assets in a bid to 'deliver sustainable returns.'

The bank is now hoping to attract refinancers from its rival banks by offering a new 6.15% digital home loan alongside cashback perks for customers.

The bank's share price has posted a rise of over 4% since the start of the year.

Rio Tinto (ASX: RIO)

Resources giant Rio Tinto Limited is the world's second largest mining corporation after fellow ASX blue chip stock BHP.

The company's highly diversified operations put it in good stead to perform soundly across a variety of market conditions.

In addition to iron ore and aluminium, Rio Tinto is also involved in the extraction and process of copper, diamonds, precious metals such as gold and silver, and uranium.

Rio is also at the forefront of Australia's industrial transformation, announcing the launch of trials for new battery-electric haul trucks at its operations in the Pilbara.

Goldman Sachs believes that now might be a good time to consider Rio for investors in search of dividend stocks. It's given Rio a buy rating with a target price of $140.50.

The investment bank expects fully franked dividends per share of A$7.07 in FY2024 and A$7.09 in FY 2025, which given Rio's recent share price of around $129.00 could result in yields of 5.5%.

Rio's share price has weathered hard times since the start of 2024, falling over 4.4% year-to-date. The miner has recently managed to recoup declines in its share price that arrived after grilling by ESG advocates during its UK annual general meeting at the start of April. Criticism over the implementation of ESG policy raised concerns over the possiblity of divestment by key investors, including the Government Pension Fund of Norway.

Analysts are upbeat about Rio, however, with a consensus price target of $133.39 that is well above the miner's recent share price performance.

CSL Limited (ASX: CSL)

Biotech giant CLS had its origins as a state-owned research laboratory that was first founded by the Australian federal government in 1916.

The company was privatised in 1994, and since then has emerged as a leading producer of a diverse range of medical products, including vaccines and antivenom as well as blood plasma derivatives and cell culture reagents used for research purposes.

Damien Nguyen, analyst at ASX broker Morgans, is upbeat about CSL. He's given the company a buy rating with a 12-month share price target of $315.40, which potentially translates into a return of around 14% over the next year.

Nguyen highlights total revenue of USD$8.053 billion for FY24, for a rise of 12% compared o the previous corresponding period. Reported net profit after tax from ordinary activities stood at USD$1.901 billion, for a rise of 17%.

CSL shares are also widely held by Australia-focused funds, with an analysis of 30 such investors finding that around two-thirds had stakes in the biotech company.

Wesfarmers Ltd (ASX: WES)

Perth-headquartered Wesfarmers owns a slew of Australia's most iconic retail brands, including Bunnings, Kmart, Target and Officeworks.

It also has industrial businesses covering chemicals, fertiliser and safety products.

This portfolio of operations makes Wesfarmers one of Australia's largest companies in terms of revenue, as well as one of its biggest private employers with over 100,000 staff.

The company's latest half-yearly results point to revenues of A$23 billion, roughly in line with consensus expectations. WES beat analysts forecasts when it came to profits, however, with statutory EPS of A$1.26.

Wesfarmers also offered a robust dividend payout ratio of 72% of profit in HY24. The last two dividends announced by the company were $1.94 per share, for a fully franked dividend yield of roughly 3% and a gross-up dividend yield of 4.4%. Management said that they hope to grow dividends to keep them in line with earnings and cash flow performance.

How to trade ASX-listed blue chip stocks

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This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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