You may have heard of the term “blue-chip stocks” or “blue-chip” stocks, but what qualifies as ‘blue-chip’ and are they available in Australia? Let’s take a brief look at some of the most frequently asked questions.
The first thing to note is that blue-chip companies are often big-name companies that are known by the man on the street. This means that you may recognise these companies but haven’t discovered what that term means for investing and the overall market performance of those stocks.
Much like other stock markets, Australia has quite a handful of stocks that are held in that special regard.
These are companies with a history of providing payable dividends to their shareholders. Its steady performance and reliability are the reasons a company is given the value of being ‘blue-chip’.
The term is related to the highest-valued chips in poker – those being in the colour blue.
That reference has been inherited from the most dependable stocks in Australia.
You will find a wide range of blue-chip stocks offered on the Australian Securities Exchange (ASX). The selection includes a variety of industries such as mining, telecommunications, banking and financial services, health and pharmaceuticals.
Blue chip stocks are known to provide those investors with a reliable stream of returns.
There is no standard or official definition of what constitutes a stock being ‘blue-chip’. Suffice it to say that only a stock that has a long and reliable history of performing well, providing dividends on a regular basis and is both well-managed and regulated has the ability to be categorised with the blue-chip label.
There are no hard and fast rules to determine which shares become blue-chip. However, most blue-chip companies have some common characteristics. What are they? Here are some traits to help you identify them:
Always remember that some blue-chip companies may lack one or two of these traits. Moreover, none of these stocks is immune to market forces. Adverse market events like recessions can affect their performance.
Blue chip stocks in Australia include the Commonwealth Bank, ANZ, Westpac and the NAB from the banking and finance sector. BHP, The Fortescue Metals Group and Rio Tinto are the leaders in the mining and energy sector.
You will also find the biotech giant, CSL and the Australian conglomerate of Wesfarmers with high-profile subsidiaries in Bunnings, Target, Kmart and Officeworks.
If you’re just starting as a trader, here are some reasons to consider blue-chip stocks:
Blue-chip stocks are lower risk and less volatile than other stocks. That makes them potential safe-haven assets for your capital, especially if you’re new to trading.
Blue-chip companies are under the management of experienced executives with outstanding reputations. That ensures these companies continue to grow and perform well in the markets.
Many blue-chip stocks pay dividends consistently, and that contributes to a more balanced trader’s portfolio.
There are a number of special considerations and inherent risks in trading, even when it comes to blue-chip stocks.
These include issues such as:
High market volatility also creates an environment of increased uncertainty. This can make for a challenging time for investors who want to better predict the future and make informed investment decisions. There can be various factors involved in this uncertainty such as changing economic conditions, changes to government policy, geopolitical events, or unforeseen issues or news relating to specific companies.
There are several economic factors that significantly impact blue chip stocks. These factors can be anything from any changes to interest rates or inflation, global economic issues, government policies and regulations as well as consumer sentiment and the willingness to spend.
It is vital that anyone thinking of investing considers the overall economic environment and each company when evaluating blue chip stocks.
There are always important strategies that you can put in place before investing, such as risk management and diversifying your investments.
You can find more on diversifying your portfolio and risk management strategies in this Guide to Portfolio Diversification.
Here’s a quick recap of blue-chip stocks. They are amongst the most valuable stocks in the markets, with massive market caps and industry dominance. In Australia, you’ll find the best blue-chip stocks on the S&P/ ASX 20. These companies are fairly easy to analyse, and you may consider them as part of your portfolio.
When it comes to CFD stock trading including CFD US stocks, you need a trusted team of CFD stock brokers.
Contracts-for-Difference (CFDs) allow you to speculate on the price movements of an asset without actually owning it.
Ready to get started? Start trading blue-chip stocks via CFDs with Vantage today where you can enjoy commissions as low as $6 per side.
Disclaimer: Vantage Global Prime Pty Ltd is authorised and regulated by the Australian Securities & Investments Commission (ASIC) AFSL no. 428901. The information is generic and does not constitute a personal recommendation or advice. Past performance is no indication of future performance and tax laws are subject to change. We do not represent that any content is accurate/current. Trading derivatives carries the risk of losing substantially more than your investment and may not be suitable for all investors. You should consider whether you’re part of our target market by reviewing our Target Market Determination (TMD). Please read our Product Disclosure Statement (PDS), Financial Services Guide (FSG) and other legal documents and seek independent advice to ensure you fully understand the risks before you make any trading decisions. This information is under the copyright to Vantage and may not be used without its prior consent.
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