Blue-chip stocks definition

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What are blue-chip stocks?

Blue-chip stocks are the shares of companies that are reputable, financially stable and long-established within their sector.

Over time, the companies that are considered blue chip tend to change, and the exact definition of what is required for blue chip status is vague. Broadly though, a blue chip company will be at or near the very top of its sector, will feature on a recognised index, and will be or have a well-known brand.

What is an example of a blue chip company?

Typically, the components of a well-known index like the Dow Jones will be considered blue chip. For this reason, top indices are somtimes referred to as blue-chip indices.

Here are the 30 components of the Dow as of November 2017:

  • 3M
  • American Express
  • Apple
  • Boeing
  • Caterpillar
  • Chevron
  • Cisco Systems
  • Coca-Cola
  • DowDuPont
  • ExxonMobil
  • General Electric
  • Goldman Sachs
  • The Home Depot
  • IBM
  • Intel
  • Johnson & Johnson
  • JPMorgan Chase
  • McDonald's
  • Merck
  • Microsoft
  • Nike
  • Pfizer
  • Procter & Gamble
  • Travelers
  • UnitedHealth Group
  • United Technologies
  • Verizon
  • Visa
  • Walmart
  • Walt Disney

What are the benefits of blue-chip stocks?

The three biggest benefits of blue-chip stocks are:

  • They're typically viewed as low risk
  • They tend to post steady earnings
  • More often than not they pay out dividends to investors

This puts them at odds with penny stocks: high-risk investments that may not see steady profits or pay a dividend.

Blue chips are not immune to crashes and bankruptcy, but such occurences tend to make the headlines: like the downfall for Lehmann Brothers and Enron, or the much publicised problems European banks had during the last recession. 

What are the most popular blue-chip indices?

As well as the Dow Jones, the top index in a major economy will often be considered blue chip, such as the:

  • DAX, which measures the performance of 30 major German companies
  • CAC 40, or 40 of the biggest companies in France
  • EU Stocks 50, which covers 50 blue chip stocks in the European Union

Broader indices, like the FTSE 100 and S&P 500, will contain a mix of true blue chip stocks and some large or mid-cap companies that aren't considered blue chip. 

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