Blue-chip stocks refer to shares of large and well-established companies with a reputation for stability, reliability, and consistent performance. Typically, these companies have been around for a long time and are considered leaders in their respective industries. It’s no surprise that they have become a popular investment choice. And thanks to their stable nature, blue-chip stocks can offer these advantages to their investors.
Stability and Success Rates of Blue-Chip Stocks
Stability is one of the most notable points of blue-chip stocks. Most blue-chip companies have stable earnings, generating stable profits. Due to their long-established financial stability and notable institutional reputation, blue-chip shares are considered less volatile than stocks of non-blue chip companies.
The low volatility and long track record indicate that blue-chip companies are likely to avoid major issues in the future, earning them a high success rate. Many investors believe that blue-chip companies can provide security during slower economic growth because of their highly experienced teams and capability to make consistent profits.
Dividend Income
Dividends are regular payments distributed to shareholders from a company’s earnings. Not all blue-chip companies provide dividends, and dividend distributions are not an absolute factor for a stock to be considered a blue-chip. However, most blue-chip companies pay their dividends. And since they usually make this payment quarterly or yearly, the regular dividend can be a consistent potential income for investors.
Capital Appreciation
Historically, blue-chip stocks have shown steady growth compared to other investments. They have a dependable and stable track record of sustained growth and promising future potential. As a result, they’re able to offer a consistent capital appreciation.
In Malaysia, blue-chip stocks have shown overall positive performance during the past decade despite some fluctuations. The FTSE Bursa Malaysia KLCI Index, which monitors the performance of blue-chip stocks in Malaysia, grew by around 39% from 2010 to 2020. Some of Malaysia’s top-performing bluech-ip companies include Tenaga Nasional Berhad (TNB), Petronas Chemicals Group Berhad (PCG), and Public Bank.
Blue-Chip Stocks Are Highly Liquid
Blue-chip stocks are highly liquid as investors regularly trade them in the market. These stocks have a large base of investors who actively buy and sell the stock daily. That being said, investors who require cash can be assured that there will be interested buyers for their shares. Investors can quickly convert their shares into cash with minimal cost or effort.
Great for Diversification
Diversification is key to generating maximum profits from your investment. Considering its steady performance and low volatility, investing in blue-chip stocks can be a great addition to diversify your portfolio. A well-diversified portfolio helps mitigate risk while balancing your overall investment strategy. It usually includes some allocation of cash and bonds in addition to stocks.
It’s worth noting that diversification in your blue-chip stocks is advised as well. That means allocating your money across a wide range of companies, encompassing those with different market capitalizations (small, mid, and large) and companies from diverse industries and geographical locations.
Considering its consistent performance and steady growth, blue-chip stocks can offer attractive returns for their investors through regular dividend payments. However, that doesn’t mean they’re immune to market downturns, but they have demonstrated a track record of weathering these storms and recovering from them.
That’s why investment strategies are still needed when you invest in blue-chip stocks, and since each investor has different financial goals and risk tolerance, these strategies are unique to individuals. Investing in blue-chip stocks can be an option if your strategy prioritizes stability, long-term growth, and lower risk.