You may have heard about the term "Blue chip stocks" and wondered what they are and how to invest in them.
Blue chips are large, fundamentally strong, cash-rich, dividend-paying, and reputable companies that are often leaders in their industry. Due to the low risk, they are a haven for investors.
Read on to find out more about the Blue-Chip stocks in Australia. Their types, what makes them superior to the rest, their pros and cons, the different brokers to buy them, and much more.
1. What Are Blue Chip Shares?
Companies with a large market capitalisation are considered blue chip companies. They are giant industrial, financial, and resource companies with a record of stable earnings over a long period. Blue chip companies have a reliable history of providing the least volatility and consistent returns.
The blue-chip companies in the S&P/ASX200 index are predominantly Financials (44%), Materials (17%), and Health Care (12%). Some of the popular ones are:
Property group Goodman in the Real Estate sector.
Grocery giants like Woolworths and Coles
Commonwealth Serum Laboratories in Health Care
Commonwealth Bank of Australia, National Australia Bank Limited, and Westpac in the financial sector
2. How To Buy Blue Chip Shares On ASX?
Are you looking to buy blue-chip stocks in Australia? We have listed the different ways that can help you buy them:
3. Comparison of Share Trading Platforms To Invest In Blue Chip Stocks
|Broker Name||Price Per Trade||Inactivity Fee||Markets||International|
eToro (global stocks) -
US$10 per month if inactive for a year
|Tiger Brokers||$6.49||No||ASX shares, Global shares, Options trading, US shares, ETFs||Yes|
|Monex Share Trading||$19.95||No||ASX shares, Global shares, US shares, ETFs||Yes|
IG Share Trading
ASX shares, US shares, UK shares, ETFs, and more
|Selfwealth (Basic account)||$9.50||No||ASX shares, US shares||Yes|
|Moomoo Share Trading||$8.80||No||ASX shares, US shares, ETFs||Yes|
|Bell Direct Share Trading||$15||No||ASX shares, mFunds, ETFs||No|
|Superhero share trading||$5||No||ASX shares, US shares, ETFs||Yes|
|Saxo Capital Markets (Classic account)||$5||No||ASX shares, Global shares, ETFs||Yes|
4. What Are The Steps To Buy Blue Chip Shares In Australia?
Buying blue chip shares on ASX is a quick and straightforward process. You can do it in 4 easy steps:
5. Frequently Asked Questions (FAQs)
What Is The Difference Between A Regular Stock And A Blue-Chip Stock?
There are many characteristics of blue-chip companies/stocks such as BHP, Telstra, CSL, and CBA that make them different from regular stocks:
Industry leaders in their respective field
Large market capitalization stocks have the advantage of operational efficiency and a financing edge through cheaper debt or equity. Further, strategic advantages enable them to acquire their competitors during a recession or an economic downturn and profits from collaborations that smaller companies may not realize.
Mature, long-running, highly reputable, well-capitalized, and well-established companies with solid financial prospects
High cash reserves, low or modest debt, and a strong credit rating
Has a competitive and dependable business model and an excellent record of generating good cash flows and returns for investors
Strong performing stocks that have given multi-bagger returns over the long-term
Consistent compounders, promising future growth and traditionally have long records of paying fixed or increasing dividends.
They have a history of enduring tough times and of rising profits.
Respected management team comprising long-term executives with solid track records.
What Are The Different Types of Blue-Chip Companies In Australia?
Blue chip companies spread across various market sectors include:
What Are The Blue-Chip Shares To Buy Now?
The S&P/ASX20 comprises blue-chip stocks across different sectors, such as Financials (44%), Materials (17%), and Health Care (12%). Here are the major ASX companies by market cap that are worth investing in:
BHP Group Ltd (ASX: BHP)
CSL Ltd (ASX: CSL)
National Australia Bank Ltd (ASX: NAB)
Commonwealth Bank of Australia (ASX: CBA)
Westpac Banking Corporation (ASX: WBC)
Australia and New Zealand Banking Group Ltd (ASX: ANZ)
Woodside Energy Group Ltd (ASX: WDS)
Macquarie Group Ltd (ASX: MQG)
Fortescue Metals Group Ltd (ASX: FMG)
Wesfarmers Ltd (ASX: WES)
Can You Make Money With Blue Chip Stocks?
Yes. Blue chips may not guarantee massive returns but can provide decent returns that beat the prevailing inflation. They are ideal for long-term investments that provide an ongoing income through dividends while protecting your investment in the stock market.
If you also want higher-return stocks, you can allocate a portion of your portfolio to blue chip stocks. It is a good idea for stability and reliability and the rest for small-cap high-growth companies with solid fundamentals and good performance records.
What Are The Pros and Cons of Blue-Chip Investment?
Before investing in blue chip stocks, you must understand their benefits and drawbacks:
Blue-chip stocks are the market leaders in their sector.
They generally have proven business models, strong balance sheets, consistent cash flows, and steady returns.
They are well-regulated and governed.
They are among the most secure stock investments due to their solid track records and performance history.
They are relatively less volatile than individual stocks during the bearish phase of the market. They are also the first to rebound when the market recovers.
You can buy them via a broker, online share trading platform, and a Mutual Fund or Exchange Traded Fund (ETF) offering a basket of multiple blue-chip stocks. Some of the examples are the Vanguard MSCI Australian Large Companies Index ETF and iShares S&P/ASX20 ETF.
They allow earning a better income and grow your capital than other investment instruments.
Regular and rising dividend payouts make them ideal for those who need an income to live off.
Less scope for growth as they are large caps and well established
May not generate market-beating returns
Suitable for income-dependent and new investors, but not for High growth and risk-taking investors
What Are The Top 10 Blue Chip Shares In Australia?
ANZ, Australia & New Zealand Banking Group Ltd
BXB, Brambles Ltd
CSL, CSL Ltd
BHP, BHP Ltd
CBA, Commonwealth Bank of Australia
IAG, Insurance Australia Group
AMC, Amcor Plc
MQG, Macquarie Group Ltd
GMG, Goodman Group
NAB, National Australia Bank Ltd
Other low-price blue-chip stocks listed on ASX include:
NCM, Newcrest Mining Ltd
WPL, Woodside Petroleum LTD
SCG, Scentre Group
SUN, Suncorp Group Ltd
RIO, Rio Tinto Ltd
TLS, Telstra Corp. Ltd
WES, Wesfarmers Ltd
TCL, Transurban Group Ltd
WBC, Westpac Banking Corp
WOW, Woolworths Group Ltd
Is A Blue-chip Stock Risky?
Blue chip stocks tend to be less volatile and defensive investment vehicles than regular stocks.
It makes them ideal for beginner investors who lack time to research individual stocks or are retired or nearing retirement. These stocks are great for portfolio diversification to manage risks, with an annual average return of 10%.
How Safe Are Blue Chip Stocks?
Blue chip stocks are usually large-cap companies that tend to offer stable and secure returns and a minimal level of risk. However, like other stocks, they are heavily influenced by global economic trends.
Thus, no blue-chip stock can assure you of a 100% return on your investment. However, as these companies are well-established and have solid balance sheets and cash flows, they usually offer consistent long-term returns to their investors.
However, you must check the company's balance sheet before investing. It will not only help derive the company value but also gives a good idea of its future growth, risks, and reward.
Are Blue-Chip Shares A Good Investment?
Blue-chip stocks are relatively stable investments compared to other more volatile assets. They are large, well-capitalized, and well-known companies that offer healthy dividend payouts to their stakeholders.
The term deposit rate in Australia is below 1%. It is low compared to the prevailing inflation rate in the country. This is causing money to lose its value over time.
On the other hand, blue chip stocks have survived market cycles and several challenges. Due to their longevity and long-term success, they tend to be more stable and secure in terms of performance and returns than small-cap or penny stocks.
Due to their long-standing financial security in the market, many investors consider blue-chip stocks to be a worthwhile investment, particularly the ones with high dividend payout ratios.
Blue chip stocks generally offer a dividend yield of 5% and tax benefits as franking credits. As their returns beat inflation, they make them a favourable alternative to term deposit rates.
Which Blue Chip Share Is The Best?
Here are a few considerations that will help you find the best blue-chip stock for your needs:
The companies must:
Make a profit.
Have a strong balance sheet, zero or negligible debt, and solid cash flow.
Pay consistent dividends.
Have a high cash flow return on assets from past investments.
Look at the company's Price Book and Price Earnings ratios (industry-based). These are indicators to ensure the company is affordable.
Identify whether you want capital growth or to generate regular income as dividends. While smaller companies are growth-focused and aim to reinvest their profits into the business, larger companies mostly pay dividends to their investors. Companies with massive growth potential also come with a much higher risk.
If you need help setting investment goals, seek financial advice to achieve long-term and short-term financial investments.
Decide on an investment time frame as long-term investments of 7 to 10 years ride out periods of market volatility. The stock market is fluctuating in nature. Investors should assess their risk-taking capacity to find blue-chip stocks that match their risk appetite. Pay attention to the benefit of dividends which is the unique selling point of Blue Chip Shares. The average dividend income these stocks provide is around 4.5% a year.
You will find many Australian blue-chip shares with good dividends providing a stable source of ongoing income during uncertain times in the market. It is good to check the dividend payments from the previous year before choosing one.
Having found the stock that meets your investment objectives and risk appetite, remember to research it before you buy. Look at the company's annual reports, historical performance, and earnings to decide whether it is a value-oriented stock for investment.
Many online share trading platforms allow investors to access research reports and long or short recommendations for several companies, including blue chip ones.
Here Is The Global Blue-Chip Stocks List To Choose From:
Apple (NASDAQ: AAPL)
AbbVie (NYSE: ABBV)
American Express (NYSE: AXP)
Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B)
Nike (NYSE: NIKE)
Coca-Cola (NYSE: KO)
Lockheed Martin (NYSE: LMT)
Honeywell International (NASDAQ: HON)
Procter & Gamble (NYSE: PG)
Mastercard (NYSE: MA)
Johnson & Johnson (NYSE: JNJ)
JPMorgan Chase (NYSE: JPM)
Walmart (NYSE: WMT)
Microsoft (NASDAQ: MSFT)
Caterpillar (NYSE: CAT)
UnitedHealth Group (NYSE: UNH)
Starbucks (NASDAQ: SBUX)
Oracle (NYSE: ORCL)
Northrop Grumman (NYSE:NOC)
McDonald's (NYSE: MCD)
Home Depot (NYSE: HD)
Kroger (NYSE: KR)
Merck (NYSE: MRK)
Intel (NASDAQ: INTC)
Goldman Sachs (NYSE:GS)
Do All Blue-Chip Stocks Pay Dividends?
Dividend payments represent earnings that help investors safeguard against the adverse effects of inflation.
Not all, but most blue-chip companies on the ASX pay dividends two times a year, including an "interim" dividend and a "final" dividend. Other companies reinvest their entire profits back into the company.
What Are The Blue-Chip Stocks That Pay High Dividends?
Some high-dividend blue-chip companies include BP, GSK, Vodafone, and Shell. Though the dividend yields may vary for these stocks, some offer a high dividend payout of around 15%.
Is Apple a Blue-Chip Stock?
Is Coca-Cola a Blue Chip Stock?
Is Netflix A Blue Chip stock?
Netflix is a famous tech giant that has grown yearly and dominates the US stock market.
Blue chips are great for beginner investors ready to dive into the stock market. They are great for people to analyze, with familiar businesses and a solid market presence.
ETFs are a convenient way to invest in blue chip stocks with limited knowledge. They let you capture the market growth without requiring the skill and time to form a stock-picking strategy.
Nevertheless, before buying, always review a company's fundamentals and have a proper risk-management strategy to ensure safe and decent returns from your investment.
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