You’ve heard about blue-chip stocks … but what are they? What makes them so special?
Blue chips are well-established, financially sound companies. Think old giants. Household names like Johnson & Johnson and Walmart. Companies that have been in business for many years with dependable earnings…
These stocks tend to be reliable, safe investments. I’ll tell you why I don’t care about that and what I prefer to trade instead. First, let’s take a closer look…
Table of Contents
- 1 What Are Blue-Chip Stocks?
- 2 Blue-Chip Stocks vs. Index Funds
- 3 Examples of Blue-Chip Stocks
- 4 Top 15 Blue-Chip Stocks to Watch for 2021
- 4.1 3M Co. (NYSE: MMM)
- 4.2 Apple Inc. (NASDAQ: AAPL)
- 4.3 Berkshire Hathaway (NYSE: BRK.B)
- 4.4 Caterpillar Inc. (NYSE: CAT)
- 4.5 The Coca-Cola Co. (NYSE: KO)
- 4.6 Exxon Mobil Corp. (NYSE: XOM)
- 4.7 The Home Depot Inc. (NYSE: HD)
- 4.8 Intel Corp. (NASDAQ: INTC)
- 4.9 Johnson & Johnson (NYSE: JNJ)
- 4.10 McDonald’s Corp. (NYSE: MCD)
- 4.11 Microsoft Corp. (NASDAQ: MSFT)
- 4.12 The Procter & Gamble Co. (NYSE: PG)
- 4.13 Verizon Communications Inc. (NYSE: VZ)
- 4.14 Walmart Inc. (NYSE: WMT)
- 4.15 The Walt Disney Co. (NYSE: DIS)
- 5 Frequently Asked Questions About Blue-Chip Stocks
- 6 Conclusion
What Are Blue-Chip Stocks?
The term ‘blue chip’ comes from the game of poker. At a standard poker table, the most valuable chips are blue. So the term was applied to the most valuable companies on Wall Street.
These are market leaders, and their stocks are popular with investors. Unlike the sketchy penny stocks I trade, these stocks are household names. They’re large companies that often help shape the economy.
While there are no clear guidelines for making the blue-chip cut, a company generally needs a market cap of at least $5 billion and years of stable earnings.
These stocks make up the most significant components of the three large U.S. indexes: the Dow Jones Industrial Average, the Standard & Poor’s 500, and the NASDAQ-100.
Blue-Chip Stocks vs. Index Funds
If blue chips are major components of index funds … why not just buy index funds?
An index fund tracks an entire index. For example, the SPDR S&P 500 ETF Trust (SPY) is an exchange-traded fund that directly follows the movements of the S&P 500.
Investors may use index funds to diversify their portfolios. That way, they have access to a range of sectors without buying individual stocks.
Because of their diversification, index funds can be less risky. On the other hand, if you own a blue-chip stock, you have a slice of the company.
Quick disclaimer: I’m not an investor, and I’m in no way giving you financial advice. All trading and investing is risky. Never risk more than you can afford. Do your due diligence. Always consult a licensed professional in your state or jurisdiction before making financial decisions.
Blue-Chip Stocks and Dividends
Blue-chip companies generally pay shareholders a portion of their profits in the form of dividends.
Companies usually pay dividends quarterly. Some shareholders reinvest them into the company. It’s a way to purchase more stock without investing more money.
Over time, reinvesting dividends creates a snowball effect. Take Warren Buffett’s investment in The Coca-Cola Co. (NYSE: KO)…
In 1988, Buffet invested $1 billion in Coca-Cola. Today, he earns roughly $656 million in dividend payments every year. In other words, he makes about 66% of his initial investment in dividend payments alone … every year. How? By reinvesting his dividends for over three decades.
High-Dividend Blue-Chip Stocks
High dividends are among the major benefits of owning blue chips. Here’s a list of some high-dividend blue-chip stocks and their dividend yields.
|Company & Stock Symbol||Dividend Yield|
|AT&T (NYSE: T)||6.8%|
|General Mills (NYSE: GIS)||3.4%|
|Dominion Energy (NYSE: D)||3.3%|
|LyondellBasell Industries (NYSE: LYB)||4.0%|
|Bank of Nova Scotia (NYS: BNS)||4.5%|
|Chevron (NYSE: CVX)||4.8%|
|Royal Dutch Shell (NYS: RDS.A)||3.2%|
|International Business Machines (NYSE: IBM)||4.8%|
|Altria Group (NYSE: MO)||6.6%|
|Verizon Communications (NYSE: VZ)||4.3%|
Examples of Blue-Chip Stocks
Over time, new companies enter the blue-chip category. Analysts and advisors argued for years about whether tech companies like Apple Inc. (NASDAQ: AAPL), Microsoft Corp. (NASDAQ: MSFT), and Alphabet Inc. (NASDAQ: GOOG) should make the cut.
Blue chips demonstrate consistently strong revenues, and they’ll likely remain stable far into the future because of their innovations. They’re the closest thing to risk-free investments in the stock market. They don’t typically move much in response to the news.
Since they’re well-established companies, there’s a ton of information about them available to the public. And because these stocks are considered safer, there are fewer regulations pertaining to purchasing them.
Most trade on the New York Stock Exchange (NYSE), the oldest and most prestigious exchange in the U.S. The NYSE is by far the largest public stock exchange in the world, with a market capitalization of $26.2 trillion.
Top 15 Blue-Chip Stocks to Watch for 2021
Blue-chip stocks are a staple for long-term investors. But they’re also important to traders because they influence other stocks.
If a penny-stock company lands a deal with a blue-chip company, that can be a huge catalyst.
Blue-chip stocks can also add spark to hot sectors. If there’s positive news for a blue-chip company, smaller stocks in the same industry can run with it. That happened last year in the electric-vehicle sector, with Tesla (NASDAQ: TSLA) leading the charge.
Here are some blue-chip stocks that are currently leading the pack…
3M Co. (NYSE: MMM)
MMM is a conglomerate with four main operating segments: transportation and electronics, health care, safety and industrial, and consumer. The company has a product for just about anything.
Apple Inc. (NASDAQ: AAPL)
AAPL changed the game in the tech industry. iPhones, iPads, and Macs are in households, businesses, and schools worldwide. Apple is one of the most valuable companies in the world, with a market cap of over $2 trillion.
Berkshire Hathaway (NYSE: BRK.B)
This is Warren Buffet’s company. I’m showing you the Class B shares because the A shares trade for over $300,000 apiece. Buying BRK stock is essentially putting your money on Warren Buffet — arguably the best investor of all time.
Caterpillar Inc. (NYSE: CAT)
CAT designs, develops, manufactures, and sells construction machinery. The company also has a clothing line. Construction demand is higher than ever, and CAT is reaping the rewards.
The Coca-Cola Co. (NYSE: KO)
Coca-Cola and Pepsi are the soda industry leaders. Americans drink 50 billion liters of soda per year. KO recently acquired some non-soda brands, including health drinks. So it’s poised to grow even more.
Exxon Mobil Corp. (NYSE: XOM)
I know there’s talk of replacing oil and gas with alternative fuels, but don’t count XOM out. The company has a solid dividend yield, and until a few years ago it was the top company in the world.
The Home Depot Inc. (NYSE: HD)
Lumber prices keep rising, and HD — the largest home improvement retailer in the U.S. — is taking full advantage. The company’s earnings have been going up, and I don’t see that stopping anytime soon. The stock is at all-time highs at this writing.
Intel Corp. (NASDAQ: INTC)
INTC, the world’s largest semiconductor manufacturer, has played a major role in the growth of personal computers. Since technology continues to advance, leading tech companies are never a bad investment idea — as long as you do your research.
Johnson & Johnson (NYSE: JNJ)
JNJ products are in just about every household. Its brands include Band-Aid and Tylenol — names that have become catch-all terms for the products.
McDonald’s Corp. (NYSE: MCD)
MCD is the largest restaurant chain in the world. There are McDonald’s restaurants in over 100 countries. The company is constantly tinkering with menu options and has arguably the best marketing skills in the industry.
Microsoft Corp. (NASDAQ: MSFT)
MSFT is one of Apple’s few competitors. The Microsoft Windows operating system is used all over the world. The company’s Xbox is one of the leading gaming consoles.
The Procter & Gamble Co. (NYSE: PG)
PG is a consumer goods corporation. Like Johnson & Johnson, the company has products in almost every home in the U.S. Its brands include Tide, Bounty, Gillette, and Tampax.
Verizon Communications Inc. (NYSE: VZ)
Along with AT&T (NYSE: T) and T-Mobile (NASDAQ: TMUS), VZ controls the majority of the cellular data market. It’s also expanding its 5G presence. People won’t stop using these brands anytime soon. The company also pays a good dividend.
Walmart Inc. (NYSE: WMT)
WMT is the only retailer that can compete with Amazon.com Inc. (NASDAQ: AMZN). The company’s boosting its online presence and maintaining the low prices that keep customers happy.
The Walt Disney Co. (NYSE: DIS)
DIS is another one that’s in nearly every home in the U.S. The company regularly produces movies that generate hype and smash box-office records. The Disney+ platform has over 94 million subscribers and continues to grow. I wouldn’t be surprised if its subscriber numbers pass Netflix’s in the near future.
Frequently Asked Questions About Blue-Chip Stocks
Are Blue-Chip Stocks Safe?
Blue-chip companies are some of the safest stocks out there. The companies have a long history of innovating and maintaining revenue growth. But nothing’s guaranteed...
Is Nike a Blue-Chip Stock?
Yes. It’s one of the 30 companies that make up the Dow Jones Industrial Average. It’s risen steadily over the past 10 years.
Which Blue-Chip Stocks Are Down Now?
Boeing Co. (NYSE: BA), Cisco Systems (NASDAQ: CSCO), and Merck & Co.(NYSE: MRK) are among the blue chips that have lagged the rest over the past few months.
What Are the Best Blue-Chip Stocks to Buy and Hold for 20 Years?
That depends on your account size and strategy. And no one can predict the future. I’d rather day trade penny stocks and ride the momentum for small gains while trading safely with rules, risk management, and strategies.
How Much Should I Invest in Blue-Chip Stocks?
I can’t make your decisions for you. For one, I’m not a financial advisor. And I’m a trader, not an investor. Focus on your education. Consider your account size and goals. Blue-chip companies may have solid reputations, but the high prices that come with that can make them harder to access with a small account. Again, that’s why I LOVE trading penny stocks.
Which Blue-Chip Stocks Pay the Highest Dividends?
High-dividend blue chips include Altria Group Inc. (NYSE: MO), AT&T, and ExxonMobil.
Blue chips are the market giants. Pretty much everybody knows these stocks, and it’s easy to find information on them.
The downside? They aren’t as accessible to traders with small accounts.
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What do you think about blue-chip stocks? Let me know in the comments!