In layman terminology, such stock is basically one that comes from a reputed organization. These stocks (usually) fork out dividends, and their history is very positive and reliable.
A blue-chip stock generally has the below-mentioned characteristics.
Steady history of expansion
The majority of blue-chip stocks have a dependable history of positive prospects in the future and constant expansion and growth. Compared to technology elated stock, which balloon quickly, a blue-chip stock might not be as flashy. However, this is because the latter has a firm and reliable history.
Capitalization of big markets
Market caps gauge how much an organization is worth and how big they are. Blue-chip stocks are usually big-cap stocks. That generally means that stocks of such kind have a massive valuation in the market (8 billion dollars or even more than that).
Dividends
Common for every blue-chip stock is the fact that they all pay out dividends. A dividend is a standard payment from a company’s earnings to every investor.
Market indices
Such stocks are present in key market indexes that include several big names like Dow Jones Average, Nasdaq, S&P 500, etc..
Examples
It is true what they say that such stocks (blue chips) change often. However, these are a few more common examples of them. There is a strong chance that you will recognize the majority of these names as they are renowned for a reason:
- Coca-ColaApple
- Disney
- Nike
- Johnson & Johnson
- IBM
- Microsoft
- Pfizer
- Walmart
- Verizon
Advantages of trading with a blue chip stock
A blue-chip stock trading boasts certain advantages. People view these stocks as a minimal risk since they pay out hefty dividends to every investor often and post stable earnings. Because a blue-chip stock has a sizable market capitalization, investors trust almost all of such stocks.
A blue-chip stock is in stark contrast to a penny stock. The latter has less and lower steady prices overall, and compared to a blue-chip stock, does not pay out dividends as frequently.
