Basics understanding about blue-chip stocks

The blue chip has now got a reputation of being stodgy, boring and outdated.  However, you need to understand that it is not without a reason that these stocks are preferred by the financial institutions and wealthy investors.  Everyone wishes to hold a stake in the business organization that has shown extreme profitability for a long period of time. Certainly, the blue-chip stock fits the description.  Over long periods, the blue-chip stocks have helped the owners to earn money and they have held on to the stocks through bad times and good times, peace, war, deflation and inflation.  

Other than blue chips stocks, now there are digital currencies that have been introduced into the market which helps in earning big money quickly.  Read through here for more help with respect to the trading of cryptocurrencies.

Understanding blue chip stock

Blue chip is the name given to the stocks of an organization which has got several qualitative and quantitative characteristics.  The term is derived from the poker game. In the card game of poker, the most valuable and highest paying chip is in color blue.  Below mentioned are few of the features of a blue-chip stock:

  • They have a record of maintaining stable earning power for the past many decades
  • It rewards the shareholders with growing dividend which would be usually substantially more or equal to the inflation rate so that the income of the shareholder keeps increasing every year
  • It boasts of a long record of payments of dividends without any hassle or delay to the common shareholders
  • It enjoys a high return on the capital invested when measured by ROE (Return on Equity)
  • The blue-chip organizations have rock-solid income statement and balance sheet especially when it is measured using interest coverage ratio
  • Blue-chip organizations are substantially larger when compared to other organization. They would be ranked top as the largest enterprise and will be measured by the enterprise value and stock market capitalization.
  • It possesses many competitive advantages which make it quite tough to unseat the market share from these stocks. These advantages come from the cost of advantage that is achieved from economies of scale, the brand value in the mind of consumer or from the ownership of an important asset that is strategically important such as oil fields.
  • These organizations issue bonds that fall under the best of the investment grade