Far from the world of small cap penny stocks are the big, safe names in the investing universe. Dubbed the blue chips, these companies tend to be industry leaders with the size and scale to continue delivering reasonable rewards for shareholders from modest growth and dividends.
The top blue chip stocks of Wall Street may not sound as exciting as smaller plays, but as part of your portfolio, they can provide steady returns.
While they may not have the high return of the growth stocks on the Nasdaq, and more likely dominate the Dow Jones Industrial Average, bought at the right time, these companies can still deliver excellent returns over time.
Some of today’s top blue-chip stocks trading today are still a bargain after the March 2020 market crash, including some undervalued dividend stocks. While they tend to be large cap stocks right now, there’s room for reasonable returns ahead with minimal risk.
Best Blue Chip Stock #1: Coca-Cola (KO)
One of the best-known brands on earth, it’s no surprise that Coca-Cola has long earned blue chip status. While the company is known for soda, it’s really a beverage giant with brands in the coffee, tea, and even bottled water space as well.
Coca-Cola is the number one company by sales in every category it competes in, except for energy drinks, where it’s still growing out its sales.
With one of the largest networks for delivery, Coca-Cola products are available nearly globally. Together with second-place industry player Pepsi, the two companies control 70 percent of the market.
Coca cola has been a key blue chip dividend stock, with dividend growth over the past 57 years. While the growth rate has been in the single-digit range annually, over time the rising dividend payout of shares has allowed the share price to provide massive stock appreciation.
It’s a classic example of how a great, but already large company, can continue to deliver excellent returns over time to investors while being a dividend king. Any stock with a history of dividend increases is a potential blue chip play in the making.
Shares often trade at a premium to the market, but right now the stock price relative to earnings is more in-line with the market. That’s a relative valuation to this blue chip giant, and one that makes it worth investing in right now.
Best Blue Chip Stock #2: Apple (AAPL)
The blue chip darling of consumer technology, this industry-leading giant is likely to maintain its lead for years to come. The company is simply a living legend. Over the years it has innovated in personal computing, smartphone technology, and even owns the world’s highest-profit-margin music store with iTunes.
It’s no wonder you can find shares in just about any mutual fund or ETF. But that’s for a reason.
So, yes, it’s a pricey company. And it carries a market capitalization
of nearly $1.5 trillion right now. But this is a company that’s likely going to continue being a long-term winner. Despite having to pay for a lot of costly manufacturing for its physical goods, the company has a 21 percent profit margin and operating margins of 24 percent. That’s closer to a purely-tech play like a software company than a firm best known for making smartphones.
Earnings growth has slowed out in recent quarters, putting it ahead of some of the dire headlines about the economy right now. But that’s what makes it a time to buy—a fact many traders have already recognized, and why shares still trade near all-time highs.
No matter what happens in the economy, consumers will still download music from the store. And they’ll still need to upgrade their iPhones on a regular basis. And with newer technologies and services in television and screening coming along, there’s still a lot of profit opportunity ahead. The stock returns here will likely continue to beat the market.
Shares even offer a dividend payment, albeit a low one just under 1 percent. But given how much the shares move in a given year, and the company’s already strong record of dividend growth and share buybacks, today’s investors are likely to continue to see excellent returns buying and holding this long-term play.
Best Blue Chip Stock #3: Microsoft (MSFT)
Microsoft is a tech giant to say the least. If you’re still thinking of it as a provider of operating systems for computers, you’re only getting a fraction of the picture.
The company is heavily invested in a number of next-generation technologies, to say nothing of having its own video game console (the Xbox), video communications (Skype) and social media site (LinkedIn).
What’s most impressive is the company’s growth in cloud services. That’s a huge potential market, and Microsoft has quickly built out its functionality there to compete with the likes of Google and Amazon.
All in all, this makes for a fascinating tech conglomerate that’s focused on being the best or second best in a few areas that have high revenue potential. Most investors have no clue that video game sales exceed box office sales for moves—and that first occurred in 2018, well before the pandemic.
Microsoft has been a fast adaptor to the times, increasing tools and functionality to the work-from-home workplace. This is a company likely to benefit from accelerating trends in technology in the years to come. That means this behemoth can get even bigger.
And right now, shares also pay a 1 percent dividend yield. It isn’t much compared to the share price, but over the past few years the company has been consistently increasing that payout, and its payout ratio remains low enough to ensure dividend growth will continue for years.
Best Blue Chip Stock #4: The Walt Disney Company (DIS)
Media giant Disney took a huge hit earlier this year when it shuttered all its theme parks globally, a segment that makes up over one-third of its revenues. Add in closed movie theaters and the company’s cruise lines, and you’d be hard pressed to find a company more susceptible to a global pandemic.
But the company moved swiftly, raising capital, suspending its semi-annual dividend, and cutting the salaries of its executive staff.
Now, the theme parks are opening back up with updated safety measures. Movies are being released on its streaming platform, which continues to show stellar numbers. And the company continues to beat expectations on its streaming platform, Disney+, which just unveiled the Broadway hit musical Hamilton.
This blue chip entertainment monstrosity will be back to dominating the global box office in time. Its parks will reopen and find ways to stay open. And the company will continue to provide high-quality entertainment, even if it’s largely from home.
Shares dropped from near $150 to $90 during the market selloff, and are still under $120 today. Compared to the company’s old high of $150 per share, this is a blue chip play that still has a lot of upside left as the global economy moves to recover.
With consumer spending and sentiment on the rise as well, shares of Disney look set for some of that old Disney magic in the second half of the year.
Best Blue Chip Stock #5: American Express (AXP)
Trading at just 13 times earnings, American Express (AXP) is a powerful brand. It’s part of an oligopoly in the credit card network space. And compared to peers, American Express focuses on more upscale customers. While they tend to spend less during an economic downturn, they tend to be the first to ramp their spending back up.
While many stocks in the broader market are pushing the market price to all-time highs, shares of American Express are still off by 26 percent. That’s in spite of strong cash flows, even as the company reported substantially reduced earnings on lower consumer spending in the first half of 2020.
American Express has endured a number of economic conditions and recessions, and it has the balance sheet to last through current woes and thrive again.
Investors who buy shares now can pick up a world-class company at a value price, as well as a 1.8 percent dividend yield that the company has a history of regularly increasing every year.
Best Blue Chip Stock #6: ViacomCBS (VIAC)
Another media-type play, this is a value play on content and delivery, and at a company that, in its current form, is relatively new and therefore somewhat misunderstood.
In 2019, Viacom and CBS merged, creating one of the largest media plays in the industry. The company offers local media programming, a publishing division, and cable networks as well as an entertainment and a sports division.
This offers a variety of entertainment content, which can often be a high-margin product. The company’s foray into streaming is showing signs of solid growth.
Right now, the company is going through its post-merger blues, trading at less than half their prior peak, making for a blue chip play that could also top a list of value stocks.
Even while that was happening, however, the company did report a strong earnings beat in the first quarter of 2020 backed by strong cash flow. The company also announced that it was redeeming some of its debt ahead of schedule, which will help clean up its balance sheet.
Besides trading at just seven times forward earnings, about a third that of the overall stock market right now, the March selloff helped push up the company’s dividend to 3.9 percent. That offers a relatively high dividend in the blue chip space.
As the new entity has a limited dividend history, we don’t yet know how it will change over time. But chances are the company will attract investors if it is able to steadily grow its dividend payout over time in addition to the share appreciation as prices rise.
Best Blue Chip Stock #7: Berkshire Hathaway (BRK-B)
Admittedly, this won’t make a list of income stocks, as shares pay no dividend yield. But for investors looking for safety, the conglomerate managed by super-investor Warren Buffett is a great safe-haven blue chip company.
The biggest reason is that the company has allowed its cash holdings to balloon to over $120 billion, or more than 20 percent of the company’s market cap. And while there’s no dividend, there is a policy in place to buy shares at or under 1.2 times the company’s book value. Many investors see that as a potential floor under shares.
Even better, however, is that shareholders in Berkshire get ownership of hundreds of companies selling everything from paint and carpet to shipping and logistics via trucking and railroads. And there’s a massive stock portfolio that includes a number of blue chip names as well. The best known is Apple, but the large cap bank holdings should also provide some portfolio upside in the second half of the year as well.
This is a somewhat complicated company with a large number of moving parts, but at the end of the day it’s prudently managed with an eye towards grabbing value when that value is apparent. That makes this company a great blue chip holding that doesn’t quite fit the mold of other companies.
FAQs:
What Stocks are Considered Blue Chip?
There’s no formal definition of a blue chip stock. Typically, companies earning the moniker are those that are well-established with a long operating history in their sector, and are the largest players. They tend to have the most consistent earnings, and are usually dividend players.
In short, these tend to be the companies that lead their sector. It can even include a tech stock with some growth ahead of it as well, as long as it’s a large, stable industry leader. It can also occur in any market, so while this list focuses on U.S. stocks, there are plenty of Canadian stocks, European stocks, Asian stocks, and so on that qualify as a blue chip play in their respective markets.
Is Blue Chip a Good Investment?
As established companies that tend to have stable earnings and pay dividends, blue chip companies tend to be seen as a good investment for those with an aversion to risk. Pretty much any broker will say that as investment advice. But you can do better.
Bought at the right time, typically during a bear market, investing in blue chips can be even safer, thanks to a lower initial price and higher starting dividend yield. The real challenge, however, is in having the patience to buy the blue chip names during a market fear or company-specific drop. Otherwise, it’s difficult to buy these great companies at a reasonable valuation.
Are Blue Chip Stocks Safe?
Generally, the blue chip name in any sector is considered the safest, based on the company’s size and for its consistent earnings, cash flow, net income, and other financial metrics. And they’re not the kind of company whose share price will be whipped around by a hedge fund buying up shares. So there’s a lot to like with blue chips for long-term investors looking to buy individual stocks instead of an index fund or ETF.
Of course, every company can get into trouble at some point, so while these names are safe, they’re not immune from dropping on bad news—including something like a broad-based market crash. Held as a long term investment, blue chips will fare well.
Should I Buy Blue Chip Stocks Now?
There are some blue chip stocks worth buying now, including the ones mentioned in this article. As most blue chip stocks tend to be dividend growth stocks as well, investors who buy today can ensure they get a growing source of income over time. That’s why it pays well to make a blue chip investment as a core part of your investment strategy, and why long term investors may want to get started today.
Generally, there’s never a bad time to buy blue chip stocks, but you can get slightly better returns if you wait to buy a blue chip company during a market pullback or after a bad quarterly earnings report. That can give you a better valuation than you may get on average.