What Are Blue Chip Stocks?

Blue chip stocks are highly valued financially sound entities that are nationally respected, especially on Wall Street. A blue chip company sells a variety of products and services of sound quality. They have a track record of continued profitably during tough economic times and in some of the most turbulent conditions. The best blue chip stocks have a long tradition of stability and steady growth performance.

In fact, associating the term “blue chip” with a company has its beginnings aligned with the blue chip in poker. In the game of poker, the blue chip has the highest value. Blue chip companies are at the top of their respective sector (usually in the top 3).

The term itself began practical use in the business world in 1923. An employee at Dow Jones, Oliver Gingold, jokingly deemed stocks trading at $200 or more per share to be “blue chip” stocks. From that point on, the term blue chip stuck. However, blue chip stocks do not necessarily have the highest price or value. They are simply companies that have proven they can stand the test of time.

Understanding Blue Chips

Blue chips maintain a highly respected market index or average. The Dow Jones Industrial Average, S&P 500, Nasdaq 100, as well as a few other international indexes, contain a nice mix of these stocks. There is no definitive rule that can be attributed to a blue chip stock. However, analysts have accepted a loosely defined benchmark as a company that has a market cap of approximately $5 billion.

Most companies of this type are considered to be multinational firms that have been in operation for a significant number of years such as:

• The Walt Disney Company (NYSE: DIS)
• The Coca-Cola Company (NYSE: KO)
• Walmart (NYSE: WMT)
• McDonald’s (NYSE: MCD)
• Salesforce (NYSE: CRM)
• Nvidia (Nasdaq: NVDA)
• Microsoft (Nasdaq: MSFT).

These stocks have established solid brands and have survived the turbulence of various economies. That makes them lucrative and desirable to be included in a portfolio.

Blue chip stocks generally experience less volatility versus shares of stocks that do not have the blue chip status. These stocks trade regularly by large institutional investors and individuals alike. Therefore, when an investor needs cash quickly, they can execute a trade with full confidence knowing that a buyer will be available.

A company with the blue chip stock designation typically has little to no debt, a respected debt-to-equity ratio (D/E), a higher than normal return on equity and a nice return on assets. Its balance sheet is solid with excellent fundamentals, having highly liquid positions. Blue chip stocks are recognized with an investment grade bond rating. Many companies that fit this criteria have a long history of consistent and rising dividends.

Blue Chip Stocks List

5. Berkshire Hathaway (NYSE: BRK-B, NYSE: BRK-A)

Berkshire Hathaway has a reputation of being cash-rich while exercising exceptional patience. Its “mode of operation” is to secure family-friendly deals from companies that are in need of immediate financial support. Berkshire Hathaway has over $140 billion in cash, which it can invest in today’s market.

Dividend Payout: No

4. Texas Instruments (Nasdaq: TXN)

Known for its graphing calculators, Texas Instruments has a history of growing dividends and implementing share buybacks. It is also the largest producer of analog semiconductor products in the world. As technology continues to impact our society, Texas Instruments will continue to be a mainstay on our Blue Chip Stocks list.

Annualized Dividend Payout: $4.6 (paid quarterly)

3. AbbVie (NYSE: ABBV)

AbbVie recently acquired Allergan (NYSE: AGN), the owner of Botox. It also has increased dividends for close to five decades. The drug company has a consistent record of outperforming in bull markets and recessions. AbbVie stock saw a small dip over the past few months, but is now climbing back to all-time highs.

Annualized Dividend Payout: 5.64% (paid quarterly)

2. General Mills (NYSE: GIS)

General Mills has long been a favorite of investors. Its status as a mainstay breakfast brand throughout the U.S., as well as its high dividend payouts, has helped this blue chip stock maintain consistent gains over its 40-year history.

Annualized Dividend Payout: $2.04 (paid quarterly)

1. Meta Platforms Inc (Nasdaq: FB)

Facebook, now Meta Platforms Inc has seen a 25% increase in the past year. With acquisitions like Oculus VR, Instagram and WhatsApp, Facebook continues to impress as one of our best blue chip stocks.

Dividend Payout: No

 

High Dividend Blue Chip Stocks

As mentioned before, blue chip stocks have a tremendous amount of value and are relatively safe investments. Many blue chip stocks have a consistent record of paying dividends. These fundamentally sound companies typically have both rising dividends over many decades and a tremendous amount of cash flow.

One of the best ways to build generational wealth with strong returns is with high dividend stocks. The dividends that these blue chips pay out allow for more secure investments and produce a sound financial portfolio. Some of these include:

• Cisco Systems (Nasdaq: CSCO)
• The Coca-Cola Company (NYSE: KO)
• Caterpillar (NYSE: CAT)
• Chevron Corp. (NYSE: CVX)
• Verizon Communications (NYSE: VZ).

 

Summary

There is no definitive criteria as to what defines a blue chip stock. Theoretically, the criteria is based solely upon the evaluator. Most experts do, however, agree on the following simple takeaways for blue chips:

• Established and highly respected corporations that have sustained the test of time
• Safer investments due to consistent growth and a record of success
• Although safe investments, they are not immune to volatility and disappointment.

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