Blue-Chip Stock

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DEFINITION of 'Blue-Chip Stock'

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.

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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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    Blue-chip stocks are generally safer for investors. However, their drawbacks for small investors include moderate growth ... Read Full Answer >>
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    It is better to invest in a dividend-paying blue-chip company because the dividend implies a greater margin of safety. A ... Read Full Answer >>
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    Some index funds that specialize in blue-chip stocks are the Fidelity Blue Chip 35 Index Fund (BRLIX), Vanguard Dividend ... Read Full Answer >>
  5. How do I determine what percentage of my portfolio to invest in blue chip stock?

    When determining what percentage of a portfolio should be invested in blue-chip stocks, identify your aversion to risk and ... Read Full Answer >>
  6. What qualifies a company as blue chip?

    The term "blue chip" in poker signifies the chip that has the highest value. The term was taken from the poker world and ... Read Full Answer >>
  7. What is the benefit of investing in blue chip stocks?

    The term "blue chip" comes from the game of poker, where a blue chip holds the highest value. Blue-chip stocks are considered ... Read Full Answer >>
  8. What does it require for a company to become a blue-chip company?

    Companies known for weathering financial or economic downturns often hold blue-chip status. Blue-chip companies are giant ... Read Full Answer >>

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