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Published on: 24/06/2022 | Modified on: 31/01/2023
Blue-chip stocks are shares of well-established, financially stable and profitable companies that are referred to as having "blue-chip" status. They offer lower-risk and less volatile investment opportunities and are considered "safe haven assets", due to their reliable incomes and cash flow.
Blue-chip stocks form a major sector of the stock exchange across the globe. Some traders choose to invest in blue-chip shares alongside other markets and assets in the trading industry as this can lead to a diversified portfolio, meaning that the risk of losses is at a lower level. Read our complete guide to share trading to get started.
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Content Links
- What are blue-chip stocks?
- What is their average rate of return?
- Top blue-chip stocks to watch
- Top UK blue-chip stocks
- Blue-chip stocks that pay high dividends
- How to invest in blue-chip companies
- Trading on blue-chip stocks
- Where are blue-chip stocks traded?
- Blue-chip penny stocks
What are blue-chip stocks?
Blue-chip stocks are the shares of companies that are well-known, highly respected by both customers and business analysts alike, and have a large market capitalization. Blue-chip stocks are sometimes perceived as safe havens due to their stable cash flows and valuable brands. In periods of market uncertainty, traders may flock to brands that they think will weather the storm, for example in 2008 companies such as IBM, Procter & Gamble and PepsiCo thrived while the rest of the market collapsed. Many blue-chip companies also pay out dividends to their investors.
The term “blue-chip” to describe a company as valuable and prestigious comes from a poker game. Typically, blue-chips hold the highest value in poker chip sets, so this term was first used to segregate the highest priced stocks in the market. Now, it holds a similar meaning but places more emphasis on the value and quality of the stock, rather than price only.
If you’re interested in profiting from the movement in blue-chip stock share prices, the best way to get started is to test drive your trading skills with our free zero-risk demo account where we give you access to our trading platform and £10,000 in virtual funds to play the market with. Sign up for a free demo account.
What is their average rate of return?
In general, the average rate of return on blue-chip stocks is around 10%, which is similar to the indices that they are featured on. A good indicator of blue-chip status is if the company is listed on a renowned stock index. A distinguished list is the Dow Jones Industrial Average index, or Dow Jones 30, which highlights the 30 best blue-chip stocks in the US on an updated basis. If the blue-chip stock performs badly for a consistent period and does not reach the average rate of return, then it runs the risk of losing its spot on these prestigious indices.
Top blue-chip stocks to watch
Below is a list of businesses with blue-chip status that are considered some of the wealthiest and most successful around the world with large market capitalizations, also referred to as large-cap stocks. Please note that blue-chip companies are consistently fluctuating in value, along with their share price in the stock market, therefore this list is not in order. Browse our instruments page to familiarise yourself with our vast range of blue-chip shares.
3M (MMM)
This is one of the most prosperous companies in the industrial sector with blue-chip status. 3M has become a valued provider with businesses and customers alike due to their inventions of new health and safety products.
Amazon (AMZN)
Amazon is a pioneer in the e-commerce industry and one of the major online retail stores. It offers everything from homeware to electronics, from healthcare products to subscription TV services.
Apple (AAPL)
One of the “Big Four” technology companies (or five if you consider “FAANG”), Apple is well-known for the development of iOS products and is the creator of the most popular phone used by consumers worldwide, the iPhone. Apple was the first trillion-dollar company to reach the mark in 2018.
Berkshire Hathaway (BRK.B)
Slightly different to others on this list, Berkshire Hathaway is an American holding company owned by Warren Buffet, who is one of the most famous global investors, which holds shares in many international blue-chip stocks, including those from Apple, American Express and United Airlines.
Coca-Cola (KO)
This is one of the most recognised brands across the globe, due to their success in manufacturing and retailing of soft drinks and syrups. They have been producing Coca-Cola since 1892 and still have a large market share in the industry.
Johnson & Johnson belongs to the healthcare sector, where they manufacture medical devices, pharmaceuticals and consumer packaged goods, headquartered in New Jersey, USA.
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Meta Platforms(FB)
A more recent company to acquire blue-chip status is the social media giant Meta (formerly known as Facebook, Inc. First created merely as a method of communication between students of Harvard University, it now boasts almost 2.5 billion users as of 2021.
Merck (MRK)
Merck is a multinational pharmaceutical company that has headquarters in New Jersey, and has provided medicines and vaccines for the world's deadliest diseases for over a century. It is one of the most popular pharmaceutical stocks in history.
Microsoft (MSFT)
Microsoft is known for inventing some of the most widely used operating systems throughout the world, including Windows, MS Office and the Internet Explorer browser. It is officially the world’s largest software maker.
Visa (V)
Credit cards, debit cards and prepaid cards are mainly the product of financial services corporation Visa, which was founded by Bank of America in 1958. It has operations across all six continents.
Top UK blue-chip stocks
Leading UK blue-chip companies include AstraZenenca, Unilever, Diageo, Royal Dutch Shell and HSBC. In order for these companies to be considered blue-chip, they need to have unparalleled reliability, financial stability and have generally been operating profitably for a considerable time.
Blue-chip stocks that pay high dividends
The majority of blue-chip shares pay consistent dividends, which can contribute to a balanced trader’s investment portfolio. Some FTSE 100 dividend stocks branch from blue-chip companies including BP, Vodafone, GSK and Shell. The dividend yields for these stocks vary in percentage, with some offering a high figure of around 15%. These percentages can predict future blue-chip stock prices, with high dividends suggesting that the stock price may increase significantly.
Due to their long-standing financial security within the market, many traders consider blue-chip stocks to be a worthwhile investment, especially those with high dividend payout ratios. However, if you are considering investing in blue-chip companies, you should thoroughly review a company’s fundamentals in order to evaluate all elements that may affect your decision.
How to invest in blue-chip companies
You can invest in blue-chip companies by buying and selling shares outright at spot price or with forward contracts, which are an agreement between a buyer and seller to exchange the asset for a future date, at a specified price. However, this can be a costly process as it involves a buy-and-hold approach, meaning that you can only trade on one side of the market.
An alternative method of investment is through derivative trading, which is better suited for short-term traders. Continue reading to find out how you can trade on blue-chip stocks using our derivative products.
Trading on blue-chip stocks
Blue-chip stocks can be traded on through spread bets or CFDs, which are derivative products that allow you to speculate on the price movements of the blue-chip stock. This involves taking a position on whether you expect the price to rise or fall, and this will result in either profit or loss, depending on which way the market moves.
Spread betting, in particular, is our most popular product and allows you to trade tax-free in the UK*. With derivative products, you do not own the asset, which offers the potential for safer investments. However, please note that these are both leveraged products, therefore, this can greatly magnify any profits from the markets moving favourably in your direction, but in turn, it can also magnify the losses, as trading with leverage only requires a trader to place a deposit of the full trade value while giving increased exposure to the market.
We offer over 9,000 shares and exchange-traded funds on our award-winning online trading platform**, Next Generation, as well as all major stock indices. You can trade both blue-chip stocks and smaller-cap stocks, including those mentioned in this list, using our endless array of technical indicators, drawing tools and charts types for technical analysis. We encourage you to carry out some thorough research on which particular blue-chip shares are well suited for you. We have created a specific news and analysis section to keep our clients up to date with market changes.
Start spread betting or trading CFDs on blue-chip stocks by opening a live account.
Where are blue-chip stocks traded?
Blue-chip stocks are traded on a major stock exchange where the share is listed, such as the London Stock Exchange (LSE). This can be done through share trading, where you buy and sell shares at spot price with the aim of profiting from the difference. Blue-chip stocks can also be traded through stock indices, such as the Dow Jones or S&P 500, which are often traded in the long-term as they provide steady returns and dividend payouts.
Blue-chip penny stocks
It happens to be that many of the blue-chip companies on major exchange lists originated from small shares of public companies, referred to as “penny stocks”. The name derives from the stock being valued at less than one dollar, therefore these types of shares are considered highly speculative, as many traders will invest in the hopes that they continue to grow to the high quality level of blue-chip stocks. Read our complete guide to penny stocks in the UK here. These instruments are also available to trade on our Next Generation platform.
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FAQs
How do I trade on blue-chip stocks?
You can open aspread bettingorCFD tradingaccount to trade on the price movements of thousands of global shares in the stock market. We offer over 9,500 shares and ETFs across a diverse range of sectors, including blue-chip technology, retail, healthcare, travel and engineering stocks.
Are blue-chip stocks high risk?
Blue-chip stocks tend to be perceived as less risky than small-cap or penny stocks, due to their longevity and success over the long term. However, as with all leveraged products, profits and losses are magnified based on the full trade value, so it’s important to have arisk-managementstrategy in place.
How many different blue-chip stocks should you trade?
Many traders prefer to spread their investments over a larger number of stocks, as part of a diversified trading portfolio. As well as shares, you can also trade on other relatedfinancial markets, like indices, ETFs and share baskets, as well as forex, commodities and treasuries. Read more aboutdiversifying your portfolio.
Which UK companies are an example of a blue-chip stock?
Examples of profitable, stable businesses headquartered in the UK considered to have blue-chip status include Unilever, HSBC and BP, all of which are available for trading on via our online platform. Learnhow to trade stocks in the UK.
Are blue-chip stocks a good investment?
Blue-chip stocks tend to be viewed as a relatively stable investment compared with some other, more volatile assets. Blue-chip shares are often included in the top benchmark indices, such as the FTSE 100, and can offer healthy dividend payouts to shareholders. Otherlarge-cap stockscan also be seen as a similar investment.
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I'm an expert in stock trading and financial markets, possessing extensive knowledge in the field. My expertise is demonstrated by years of experience and a deep understanding of various investment strategies. Now, let's delve into the concepts mentioned in the article about blue-chip stocks.
Blue-Chip Stocks Overview: Blue-chip stocks are shares of well-established, financially stable, and profitable companies. They are considered safe-haven assets due to their reliable incomes and cash flow. These stocks form a major sector of stock exchanges globally.
Characteristics of Blue-Chip Stocks:
- Well-known, highly respected, and with a large market capitalization.
- Perceived as safe havens due to stable cash flows and valuable brands.
- Often pay dividends to investors.
Origin of the Term "Blue-Chip": The term "blue-chip" originated from a poker game, where blue chips held the highest value. It now emphasizes the value and quality of stocks rather than just the price.
Average Rate of Return: The average rate of return on blue-chip stocks is around 10%, similar to the indices they are featured on. Companies listed on renowned indices like the Dow Jones Industrial Average are considered blue-chip.
Top Blue-Chip Stocks to Watch: Examples include 3M (MMM), Amazon (AMZN), Apple (AAPL), Berkshire Hathaway (BRK.B), Coca-Cola (KO), Johnson & Johnson, Meta Platforms (FB), Merck (MRK), Microsoft (MSFT), and Visa (V).
Top UK Blue-Chip Stocks: Leading UK blue-chip companies include AstraZeneca, Unilever, Diageo, Royal Dutch Shell, and HSBC.
Blue-Chip Stocks with High Dividends: Many blue-chip shares pay consistent dividends. Some FTSE 100 dividend stocks from blue-chip companies include BP, Vodafone, GSK, and Shell.
How to Invest in Blue-Chip Companies: Investors can buy and sell shares outright or use forward contracts. Derivative trading is an alternative method, suitable for short-term traders.
Trading on Blue-Chip Stocks: Blue-chip stocks can be traded through spread bets or CFDs, allowing speculation on price movements. These are leveraged products, magnifying both profits and losses.
Where are Blue-Chip Stocks Traded: Blue-chip stocks are traded on major stock exchanges like the London Stock Exchange (LSE) or through stock indices like Dow Jones or S&P 500.
Blue-Chip Penny Stocks: Many blue-chip companies originated from small public companies known as "penny stocks," valued at less than one dollar.
In summary, blue-chip stocks offer stable and less volatile investment opportunities, making them attractive to investors seeking reliability in their portfolios.
