Blue Chip Stocks: How to Invest in Blue Chip Companies

Blue chip stocks are a type of stock that is considered to be safe investments.

The term “blue chip” comes from poker games. It was first used in the 1920s by poker players in reference to high-quality chips that were not easily counterfeited. 

While some might think of blue chip companies as “old school,” they are around today because they are consistently profitable and reliable.

In this article:

• What are blue chip stocks?
• Examples of blue chip companies in Nigeria
• How to invest in blue chip companies
• Advantages and Disadvantages of Blue chip stocks
• Blue chip stocks and investment grade bonds
• Is bluechip a good investment?

What are blue chip stocks?

Blue chip stocks are the stocks of large, well-established companies with a history of steady growth and dividend payments.

Blue chip companies are considered to be safer investments than some other types of stocks because their earnings tend to be strong and their share prices tend not to fluctuate as much. 

These stocks can sometimes seem overpriced because they’re so stable. 

For example, when you look at Apple today, you might think that its stock is expensive compared with its competitors— but it’s also likely that Apple’s shares will be worth more in 5 years than they are today.

It may seem counterintuitive that an investment can both feel safe and be overpriced at the same time—but if you think about it in terms of how markets work as a whole, then this makes sense. 

For any given product or service (including shares), there will always exist customers who value its utility highly enough that they’re willing to pay whatever price is necessary for access.

Examples of blue chip companies in Nigeria

Some of the blue chip companies in Nigeria include:

• Unilever Nigeria Plc
• Nigerian Breweries
• Guinness Nigeria
• Cadbury Nigeria Plc
• Nestle Nigeria
• Dangote Cement

How to invest in blue chip companies

Blue chip stocks can be purchased directly from the issuing company or traded on the open market. 

You can invest in blue chip companies through options like online trading or opening a new brokerage account or retirement account.

In addition, some asset managers also have mutual funds or index funds that specifically target blue-chip stocks, making it easy to invest in a mix of curated blue-chip companies.

Advantages and Disadvantages of Blue chip stocks

	Advantages	Disadvantages
1	Can be less risky than other stocks	Returns tend to be not as high as newer, less established companies.
2	Less volatile	Less room to grow.
3	Returns are reliable returns and dividends are steady	Blue chip stocks can be overpriced because they’re very stable and have high demand.

Blue chip stocks and investment grade bonds

Blue chip stocks can be likened to investment grade bonds in that they have a relatively low credit risk, low default rate and are less volatile compared to other bonds.

Blue chips are the biggest companies in their industry.

If something bad happens to one of these companies, it can cause problems across the entire industry. 

Think about what happened with Lehman Brothers in the United States during the 2008 financial crisis. 

It was a huge blow to investors who had invested in Lehman stock because it caused markets worldwide to take a dive.

Learn more about junk bonds.

Conclusion

Blue chip stocks are the stocks of large, well-established companies with a history of steady growth and dividend payments. They have been around for decades and are known for their stability and reliability.

Nevertheless, as an investor, you should do the necessary research about any company you consider investing in.

GLOSSARY

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