Definition of Blue-Chip Stocks

Investing in the stock market involves a certain amount of risk. Some types of investment vehicles and securities are less volatile and safer than others. Blue-chip stocks fall into this category.

Definition

A blue-chip stock is defined as a stock of a long-established company that has a record of earning profits and paying dividends in both bad and good economic environments and markets.

Recognition

Most blue-chip stocks are well known--recognizable by name or product. They consist of large companies with respected management and good future prospects.

Function

Investing in a blue-chip stock can earn an investor steady and regular dividends. Blue-chip investing is ideal for conservative investors who want to avert risk.

Identification

Blue-chip companies were once high-priced stocks traded mainly on the New York Stock Exchange. Today, blue-chip stocks are moderately priced and traded on alternate markets such as the NASDAQ (examples are IBM, Johnson & Johnson, McDonald's and Exxon).

Warning

A bear market can hit blue-chip stocks, too; they can, will and do rise and fall in good and bad markets. Dividend cuts or omissions are not unheard of, but they are not common.

Potential

Investing in a blue-chip stock can provide reliable income with capital preservation and/or appreciation.

References

• Blue Chip Stocks
• Blue Chip Investing