Blue Chip Stocks

The term blue chip comes from poker, where traditionally the blue chips carry the highest value. Large, established firms that are considered high-quality, dividend-stable and financially solid are sometimes referred to as blue-chip stocks.

Blue-chip companies are leaders

These firms are leaders in their industries and are considered likely to grow for a long time. For this reason, they often set the standards by which other companies in their fields are measured. Well-known blue chips include IBM, Coca-Cola, General Electric and McDonald’s.

The Dow Jones Industrial Average comprises 30 blue-chip stocks. Blue chips are also included on the S&P 500 and NASDAQ indexes. These make up a significant portion of the total market value of stocks listed on the New York Stock Exchange.

Stocks of large, established firms are sometimes referred to as blue-chip stocks.
Blue-chip stocks generally pay out dividends.

Who seeks blue chips?

Investors who seek investments that tend to pay steady dividends and that also have growth potential are attracted to blue-chip stocks. These stocks can be priced high because of their demand and attributes, usually have relatively low volatility, and may deliver dividends, though it is important to note that dividends can be reduced or eliminated at any time. The main downside is that, since blue-chip companies are so large, they may not grow as quickly as compared to smaller, up-and-coming companies.

Learn more about the risks of blue-chip stocks.