The company is a growing producer of energy — much of it generated by renewable sources — that it sells and transfers to utility companies in other markets. The steady demand for electricity that underpins its business, combined with growth in demand for renewable energy, gives NextEra a premium valuation and blue chip status. Regardless of whether a blue chip stock has a rapidly growing dividend, the combination of blue chip status and dividend payments can be rewarding for investors. Investors of all experience levels can appreciate the stability and reliability blue chip businesses give to shareholders. Many of these companies pay great dividends and have payout growth streaks that have earned them a spot among the illustrious ranks of the Dividend Kings. Coca-Cola is the quintessential blue chip stock, a drinks company that has demonstrated decades of consistent dividends and stable performance.
Advantages of Blue Chip Stocks
This is rather a rule than an exception for blue-chip companies, making them attractive investments for investors wary of high volatility. The term blue chip originated from poker and was later used in finance to describe reliable and stable stocks or companies with a history of consistent performance. It has become synonymous with top-tier, well-established companies in the stock market. While blue chip companies can be reliable, that also comes with slower growth. This feature makes them a conservative option for investors looking for a safe bet for an already established portfolio.
Why invest in blue chip stocks?
Blue-chip stocks are stocks issued by large, well-established companies that has a proven track record of financial success. In many cases, the companies in this category of stocks are household names that you are likely to be familiar with. Among more cautious investors, blue-chip stocks are popular https://investmentsanalysis.info/ because of their stable returns on investment over time. A blue-chip stock is stock from a company with a large market capitalization, a long history of growth and a place in a major market index. Blue-chip stocks are well-established, have strong financial numbers and often have name recognition.
#3 Low Volatility
This article will explain blue-chip stocks and list five top picks for the upcoming year. Alternatively, investors can choose to invest in an ETF or mutual fund. Whereas mutual funds are actively managed, ETFs simply follow an index. Many popular blue-chip ETFs track one of the indexes mentioned earlier in this article.
They do so by rewarding shareholders with a dividend payment, usually every quarter. Reliable and steady cash flows allow these companies to offer investors a relatively high dividend yield. Resiliency like this, in combination with decades of data on financial performance and stock market returns, makes investors feel confident about the future of a company. A proven track record of stability is especially important to more risk-averse or older investors.
Realty Income
- Since there is no hard and fast definition of blue-chip stocks, we filtered for stocks featured on the S&P 500, NASDAQ 100 or Dow Jones Industrial Average indexes with a market cap of $200 billion or more.
- In his current role at Kiplinger, Dan writes about equities, fixed income, currencies, commodities, funds, macroeconomics, demographics, real estate, cost of living indexes and more.
- These companies are typically industry leaders, often characterized by a history of paying dividends and maintaining a steady performance across various market conditions.
NextEra is one of the largest utility companies in the U.S. and among the largest producers of renewable energy in the world. The company benefits partly from being headquartered in Florida, one of the fastest-growing states in both population and business development. Broadcom dedicates billions of dollars to research and development every year, so the importance of its products isn’t likely to fade anytime soon. Additionally, the company has not been shy about spending money, most-recently into more software products. In May of 2022, it reached a huge $61 billion deal to buy VMWare further expanding its reach into software to augment its core semiconductors business. As a result, Broadcom is one of the most profitable names in the semiconductor industry.
It was widely regarded as a safe, blue-chip company, but due to competitive pressures and lack of innovation, the company eventually had to declare bankruptcy. There are blue-chip companies in virtually every sector and they’re easy to find as they’re normally (one of the) leaders in a particular industry. The Dow Jones Industrial Average is known as a “blue-chip” index as it’s composed of the biggest companies in the United States.
The stock offers an excellent combination of income and upside due to its current 3% yield and five-year annualized dividend growth rate between 6% and 7%. PepsiCo pays about 66% of its earnings out as dividends, leaving enough cushion for PepsiCo to invest in growth or endure an unexpected slump. Realty Income (O -0.10%) is poised to benefit from lower interest rates. Realty Income is a real estate investment trust (REIT); it acquires and leases real estate and distributes its taxable income to shareholders as dividends. First, the company focuses on single-tenant retail properties, such as renting to businesses like convenience stores, grocery stores, movie theaters, and more. These tenants are all recession-resistant businesses that pay dependable rent.
While blue chip stocks are slow to grow, they can be a trusted addition to a portfolio. That’s because these companies are predicted to have a bright future, whether through new products or inventions. Think Apple’s VR headset and Watch or Nike’s collaborations and new shoe technology. If you’re looking for dividend payouts and steady growth, blue chip stocks could be perfect for your portfolio. These high-growth upstarts aim to be the blue chip companies of tomorrow. Investing in blue chips starts with researching and selecting companies that have strong financial fundamentals and performance history.
This familiarity is an additional reason why blue-chips are so popular among retail investors. In this article, we’ll explore whether or not these familiar firms also make for good investments and we’ll guide you through the process of finding and evaluating blue-chip stocks. The companies that issue blue-chip stocks are often manufacturers of products that most of us use every single day. Additionally, the signs of these companies are often visible in city centres and main streets, giving people a feeling that they know these companies well.
It also opens the door to large dividend-payers that aren’t in the DJIA. It also excludes DJIA companies that don’t pay dividends, of which there are currently three. Unfortunately, the DJIA definition of blue chips isn’t terribly descriptive. That’s because there are no quantitative rules governing stock selection for the index. Its only published guideline is that the DJIA represents the top 30 stocks across all sectors except transportation and utilities—with a focus on reputation, track record of growth and trading volume.
Blue-chips are also favored by dividend investors, as these sizable companies can afford to share substantial profits with shareholders. Moreover, they frequently Blue chip stock list raise dividends annually and may use excess cash for share buybacks. Instead, they can afford to share their profits with the company’s shareholders.