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Blue chip shares – what are they and why invest in them?

Updated on February 13, 2024

Do you trade? Every good investor has surely heard of blue chip. You don’t know what blue chip stocks are? Come and learn about them. These shares are considered one of the safest investments ever. Therefore, they should also form the core of your portfolio. In this article, you will learn which companies can boast of such a label. And also how it is with their dividends.

 What is a Blue Chip Action?

Have you ever played poker? If not, know that the most expensive chips are blue. And the name blue chip stock also comes from this gamble. In the field of investments, these blue chips are precisely blue chip stocks. And not yet. Companies that offer such shares are reliable investments. They are economically sound, stable, and the market capitalization of such companies is calculated at billions of dollars. Therefore, they can offer stable dividends to their shareholders. In many cases even growing.

Blue chip shares are the shares of the biggest players who have been on the market for a long time. So, if we look at the names of some blue chip companies, you will surely know what they are doing right away. You see their products almost every day. They are usually part of the most popular indices, such as the Dow Jones , DAX or Nikkei 225. Specifically, among them we can find, for example, the technology companies Apple, Intel and Microsoft. But this also includes companies from other industries. Among them Coca-Cola, RWE and McDonald’s. The vast majority of such corporations are based in the US. But they are also widespread in Europe. Among the Czech blue chips are, for example, Komerční banka and ČEZ.

Why invest in blue chips?

Why invest in blue chips? To make sure. Companies whose shares are referred to as blue chips have already survived a number of economic cycles. So they can be considered durable. Which is usually true. However, even here there are exceptions that confirm the rule. So you can’t rely on them with 100% certainty. In the investment world, however, they are ranked among those with the lowest risk. And in addition, with the most stable returns on dividends.

Since the profits of such companies are stable, blue chips also offer their shareholders regular profits in the form of dividends. And quite high. Sometimes these dividends are even growing. Therefore, blue chips should form the core of your broader portfolio. Of course, if you find blue chips boring, invest in shares of other companies as well. Or to other assets. Ultimately, it pays to have a diversified portfolio. But blue chips are able to bring you a stable profit even in the period of economic recession. You can simply trust that blue chip companies will not just disappear from the market.

 How to evaluate them

In general, there is no comprehensive measure according to which we can rank specific companies among blue chips. However, they are usually considered to be companies with a market capitalization of at least $5 billion. But even that is not a decisive aspect for the blue chip. This includes smaller companies that are, however, considered leaders in their industry.

So when assessing whether a blue chip is involved, it is good to focus on their profits, dividends and their financial health. This means whether they are able to pay their debts. Of course, also check what history the company has in the market and what its potential is for the future. In addition, a company that should be considered blue chip should be well known. And as we already mentioned, it should be part of one of the most important indexes.

Trading these shares

Trading with blue chips is advantageous especially for long-term or medium-term investments. At the same time, do not imagine that you will get rich on such shares in a short time. The dividends of such stocks grow gradually and slowly. It should be a really solid investment. Nothing for speculators who need some adrenaline all the time. However, even they usually base their portfolio on blue chips.

And while speculators seem to prefer investing in individual stocks, whether blue chip or otherwise, investors who need the feeling of safe investments can rely on ETFs . Or to mutual funds. In that case, he does not have to monitor the situation and the market so much. The fund manager will look after them. At the same time, it provides diversification for them.

When you buy ETFs or mutual funds, you get a small percentage in several companies. And that is what ensures the diversification of stocks in your portfolio. You can choose between different types of stock mutual funds and ETFs. For example, they may include shares of certain countries, or perhaps shares of corporations from a certain period. 

Blue chips – yes or no?

So blue chips yes or no? If you want some degree of security and stable dividends, then sure. At least as the basis of a wider portfolio. But definitely don’t rely only on blue chips. Especially if you like to speculate. Nothing prevents you from expanding your portfolio with other assets as well. Or other shares with interesting returns. But with blue chips, you should be sure of a constant income in the form of a dividend.

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