Blue Chip Stocks
Blue-chip stocks refer to those stocks in a corporation with a national reputation for quality, reliability & the ability to operate profitably in good and bad times. They basically refer to the shares of companies with large market capitalization (Blue chip Companies). These are heavily priced market stocks, that have evolved as a favored investing choice in recent times. In addition to their reputation, these companies are being attributed to the increasing success of the said stock through lucrative dividend payouts. But let us get some important details before investing in blue-chip companies.
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What is a Blue Chip Stock?
A blue-chip stock is a huge company with an excellent reputation. These stocks are typically large, well-established, and financially sound companies. These companies have operated for many years & have great earnings. They are financially sound companies. Blue-chip companies have a market capitalization in billions, it is usually the market leader or among the top companies. The blue-chip word is referred from “poker” as in poker the most expensive coin is the blue-chip. Those stocks can endure harsh market conditions and generate massive returns under stable market conditions. Blue-chip stocks usually cost a great deal, since they are well-known and often leading in their respective fields.
How to Identify a Blue Chip Stock?
Usually, blue-chip stocks have a long record of paying regular dividend payoffs but a blue-chip company doesn’t need to pay dividends. If a company has a market valuation of near to 1 billion and has experience in the industry for more than 10 yrs and is a financially stable company it can be considered as the blue-chip stock. They are the safest stocks as compared to others because its the most valuable. While a blue-chip company may have survived challenges and market cycles. Leading to being perceived as a safe investment.
Reasons for Investing in Blue Chip Stock:
The investors who prefer to take less risk to invest in these stocks as they get a consistent rate of dividend every year. Usually, investors who are aged and don’t have time to study the market invest in blue-chip stocks like these are financially stable companies and have great goodwill in the market. They deliver higher returns paid on a quarterly basis. Also, the consequences of the recession, inflation, and economic instability are tackled by blue-chip stocks. Investors can invest in Blue-Chip stocks either directly or through the Mutual Funds.
Some examples of Blue Chip stocks:
|Tata Consultancy service
|Cola India Ltd
|Larsen & Toubro
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If you are looking forward to a safe investment blue-chip stocks are the best stocks to invest in as they are financially sound companies and give regular dividends but their growth would be slow as they are already in a higher place. However, while weighting varies greatly depending upon their objectives and risk tolerance, investors could rely on blue chip stocks to boost their portfolio’s stability and strength.
Author – Hariharan Krishnan
About the Author – Hariharan Krishnan is currently in second year BAF and is also doing FRM part 1. He is passionate about financial markets and loves to play chess and outdoor games.