While we may hear the words “blue chip” to describe shares issued by a respected, established company, we might not exactly know what that means. Blue chip companies are those who have a track record of doing well over a long period of time and toughening it out during challenging market conditions.
Blue chip companies as sharing qualities that include longevity, which means they’ve been in the market for a long time; reliability, which indicates they deliver good earnings over an extended period of time; low levels of debt; and their total shares are in excess of $10 billion. Examples of blue chip companies include Apple, Microsoft, Procter & Gamble, Pepsico, and Bank of America, which are all listed on the S&P 500 Index.
Buying a blue chip stock, or into funds that hold them, has a downside. Forbes says a blue chip doesn’t experience the dramatic highs (and lows) that you might see from an internet startup, and their shares are expensive to acquire, but they are known for making regular dividend payments, which will add up in the long run.