Top Reasons to Consider Investing in Blue-Chip Stocks

It is a known fact that investing plays a pivotal role in maintaining the value of hard-earned money while letting it grow beyond its original worth. And, when it comes to investing, many seasoned investors and financial institutions prefer blue-chip stocks due to its demonstrated record of extreme profitability over the years.

Similarly, blue-chip stocks are shares of very large corporates that have been functioning for many years. Since blue-chip companies have a market capitalization in billions and reflect strong financial stability, they are usually considered as a safe and long-term investment vehicle. Investors prefer investing in blue-chip stocks as they have shown capabilities to endure economic downturn and provide high returns in good market conditions.

Breaking Down Blue-Chip Stocks:

While no single component makes a blue-chip stock, dividend plays a fundamental role for a stock to be viewed as a blue-chip. Most blue chips showcase long records of stability or rising profits. 

A blue-chip stock is commonly a segment of the most reputable market records, for example, BSE, Sensex, Nifty in India, Nasdaq-100 in the United States or the FTSE Index in the United Kingdom. Ideally, a company should have a market capitalization of $5 billion to fit the bill for blue-chip status. For instance, companies like TCS, ITC, HDFC, and Hindustan Unilever Ltd are a few of the blue-chip companies present in India.

Why Blue-Chip Stocks Provide High Returns?

Blue-chip stocks are identified for their lower debt proportions, diversified source of earnings that remunerate economic mishaps that ought to emerge in any of its verticals, and their capacity to pay steady returns and ride out the market conditions. Since diversification prompts less variance in their stock costs, they are considered as a safe and secure option to invest.

Here are the reasons why blue-chip stocks are considered as a safe option for investors as compared to their peers like mid-caps and small-caps.

Stable Returns:

If a company has been showcasing stable earnings over an extended period of time, it becomes trustworthy and gains the confidence of investors. This is often viewed as an indication of an organization’s competence. On the off chance that a stock is not performing well or showcasing stable earnings, it infuses a sense of doubt among investors, which has driven them to instability. Hence investing in blue-chip stock is synonymous to a stable and consistent return portfolio. 

Timely Dividend Payments:

Investing in blue-chip stocks mean timely payment of dividend – another factor that attracts investors. Consistent payment of dividend acts as an extra income on the invested amount. 

Historically, blue-chip stocks are known for churning increased and uninterrupted dividend payments. This means, over time, investors can benefit from dividend payments and generate portfolio income. For instance, if an investor receives a dividend of 25% on your investment, it means that the capital on the total invested amount has increased by 25% at the same time as the earning potential in the form of dividends. Fundamentally, dividends are extra income over the value of the investment, hence help in safeguarding against inflation. 

Robust Finance:

Blue-chip companies are known to portray a strong and healthy financial base. This means they have a healthy debt-equity ratio, low risk, controlled risk portfolio, and efficient operating structure. For an investor, having blue-chip stocks in his/her portfolio translates to lesser volatility, minimum risk, and better probability to manage portfolio risk. 

Diversification:

Investing in blue-chip stocks are considered a viable option for investors who like to play in the high-risk investment arena. Since blue-chip stocks are comparatively safe, they are considered as a great way to reduce portfolio risk. So, even when other investment instruments fail to provide substantial returns, blue-chips can provide a shield to cover up the losses incurred. These organizations, for the most part, have expanded business lines, socioeconomics, and different income sources which thus help them lessen the chance of operational failures.

Goodwill and Brand Value:

Blue-chip organizations are household names, in the means for solutions or services which are trusted and utilized daily. Such brands consistently have an edge over other developing organizations. With the use of easy franchise availability, distribution advantage, and cost-efficiency, they have set themselves as market pioneers. Some renowned blue-chip organizations are Reliance Industries, Infosys, and Unilever.

Bottom line:

Blue-chips have robust balance sheets with continuous cash flow, solid plans of action, and stable, steady growth, making it a lucrative investment option. That’s the whole reason why many seasoned investors consider blue-chip stocks to be a secure investment option. Long term investors can search for their interests in blue-chip stocks to grow steadily over time and to consistently get profit installments. These reliable and safe stocks are like family heirlooms that can provide a considerable return as long as an investor holds on to them.