What is a Blue-Chip Stock?
Blue-chip stocks are shares of large, nationally recognized companies with large market capitalizations, strong balance sheets, and histories of stable earnings. The term originates from poker, where blue chips carry the highest value. Examples include components of the Dow Jones Industrial Average.
Role in Portfolio Construction
Blue-chip stocks can serve as portfolio anchors. Some blue chips also qualify as Dividend Aristocrats, having raised dividends for at least 25 consecutive years.
Key Considerations
Blue-chip status does not guarantee safety. Companies like General Electric and IBM were once considered quintessential blue chips yet delivered poor returns for extended periods.