A blue chip stock is the nickname for a stock from a safe, very large company that has been around for a long time and is in good standing. Make gradual increases and lower potential losses by investing in blue chip stocks with advice from an investments manager in this free video on investing.
Despite their reputation as boring, stogy and perhaps even a little outdated, blue chip stocks have long reigned supreme in the portfolio of retirees, non-profit foundations and conservative individuals. These companies often reside at the core of American business and boast pasts as colorful as any novel (the phrase blue chip, for example, comes from poker where the highest and most valuable playing chip is – you guessed it – blue). Yet the prosaic-ness attributed to them is certainly not deserved; there is nothing more exciting than making a profit and that is certainly what blue chips are all about.
A blue chip stock is one that entails unusually small risk (risk being a subjective judgment). Stocks that are considered “blue chip” are issued by large stable corporations like IBM.
Most professional investors agree that blue chips share several important characteristics including:
* An established record of stable earning power over several decades
* An equally long record of uninterrupted dividend payments to common stock holders
* A history of regular increases in the dividends payable to each share
* Strong balance sheets with a moderate debt burden
* High credit ratings in the bond and commercial paper markets
* Large size relative to American businesses as a whole in terms of revenue and market capitalization
* Diversified product lines (e.g., General Electric) and / or geographic location (e.g., Coca-Cola).
* A competitive advantage in the market place due to cost efficiencies, franchise value or distribution control