Blue-Chip Stock

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What is a 'Blue-Chip Stock'

A blue-chip stock is the stock of a large, well-established and financially sound company that has operated for many years. A blue-chip stock typically has a market capitalization in the billions, is generally the market leader or among the top three companies in its sector, and is more often than not a household name. While dividend payments are not absolutely necessary for a stock to be considered a blue-chip, most blue-chips have a record of paying stable or rising dividends for years, if not decades. The term is believed to have been derived from poker, where blue chips are the most expensive chips.

BREAKING DOWN 'Blue-Chip Stock'

A blue-chip stock is generally a component of the most reputable market indexes or averages, such as the Dow Jones Industrial Average, the S&P 500 and the Nasdaq-100 in the United States, the TSX-60 in Canada or the FTSE index in the United Kingdom.

While a blue-chip company may have survived several challenges and market cycles over the course of its life, leading to it being perceived as a safe investment, this may not always be the case. The bankruptcy of General Motors and Lehman Brothers, as well as a number of leading European banks, during the global recession of 2008, is proof that even the best companies may sometimes be unable to survive during periods of extreme stress.

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