A:

The term "blue chip" comes from the game of poker, where a blue chip holds the highest value. Blue-chip stocks are considered high-valued, supreme long-term investment vehicles. Historically, they have shown to generate growth in long-term portfolios. Blue-chip stocks are stocks of well-known and well-established companies. Blue-chip stocks have several characteristics that benefit investors in the long-run.

The majority of investors know blue-chip stocks have stable earnings. During an economic downturn, investors may turn to these safe havens because of their secure nature. Blue-chip companies offer security during periods of slowed growth due to their intelligent management teams and ability to generate stable profits. If the stock market is experiencing a bear market, investors don't need to worry about their investments in blue-chips because, generally, they recover. JPMorgan Chase provides a good example with its recovery from the 2007-2008 financial crisis.

Many blue-chip stocks, historically, pay out dividends to their shareholders. Since blue-chip stocks do not move much in price, they offer dividends to make up for it. Blue-chip stocks have shown that, generally, they make increased and uninterrupted dividend payments over time. In the long-run, an investor can benefit from dividend payments and generate portfolio income. The dividend payments help to protect against the adverse affects of inflation.

Blue chips have strong balance sheets and cash flows, strong business models and strong, consistent growth. Many investors consider blue-chip stocks to be secure investments. Long-term investors can look for their investments in blue-chip stocks to grow steadily over time and to receive dividend payments.

RELATED FAQS
  1. How Do Stockholders Profit From Stock Ownership?

    Shareholders are part owners of a company and its assets and earnings. What's that really mean? Read Answer >>
Related Articles
  1. Investing

    Banking On Blue Chip Stocks

    Discover what makes blue chip stocks such attractive investments.
  2. Investing

    5 Reasons You Should Love Stocks

    Despite their volatility, stocks as a whole have historically risen in value over time more than any other type of investment.
  3. Investing

    Two Reasons Dividends Will Drive Returns in 2016

    Dividend paying stocks are expected to be in vogue this year. But investors have to be choosy when picking one to invest in.
  4. Investing

    Put Dividends to Work in Your Portfolio

    Find out how a company can put its profits directly into your hands.
  5. Financial Advisor

    3 Income-Oriented Investments That are Top Bets for Retirement in 2016 (MO, JNJ)

    Discover the three best income investments for 2016. Learn how to protect yourself and profit from Federal Reserve interest rate hikes.
  6. Investing

    Dividends Still Look Good After All These Years

    Find out how this "first love" still holds its bloom as it ages.
RELATED TERMS
  1. Blue-Chip Index

    A blue-chip index seeks to track the performance of financially ...
  2. Dividend

    A dividend is a distribution of a portion of a company's earnings, ...
  3. Blue Chip Swap

    Blue Chip Swap is an international asset trade profiting from ...
  4. Dividend Irrelevance Theory

    The dividend irrelevance theory is a theory stating that investors ...
  5. Dividend Rate

    The dividend rate is the total expected dividend payment from ...
  6. Blue Sheets

    Blue sheets are requests sent by regulators to market makers ...
Hot Definitions
  1. Yield Curve

    A yield curve is a line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but ...
  2. Portfolio

    A portfolio is a grouping of financial assets such as stocks, bonds and cash equivalents, also their mutual, exchange-traded ...
  3. Gross Profit

    Gross profit is the profit a company makes after deducting the costs of making and selling its products, or the costs of ...
  4. Diversification

    Diversification is the strategy of investing in a variety of securities in order to lower the risk involved with putting ...
  5. Intrinsic Value

    Intrinsic value is the perceived or calculated value of a company, including tangible and intangible factors, and may differ ...
  6. Current Assets

    Current assets is a balance sheet item that represents the value of all assets that can reasonably expected to be converted ...
Trading Center