Blue Chip Stocks: Stable Investments for Growth | Top Picks 2023

Blue-chip companies are large-cap companies that exceed $10 billion in market cap, have been operating for many years, have stable cash flows, and have an experienced management team, which undoubtedly reduces the level of risk and gives investors’ confidence and a good foundation for a portfolio. ASX blue-chip stocks are not only for risk-averse investors; there are investors who have major concerns about "safety" as one of the principal attractions of the stock. The safety comes from the solid financial stability of most blue-chip stocks and decades of good track records. Many blue-chip companies are market leaders in the sectors in which they operate, and the products and services they provide are instantly recognizable to investors and the general public. Putting all those factors together suggests blue-chip companies can withstand downturns in the world economy or their respective business sectors.

Investing in Blue Chip Stocks or Companies

An investor can balance their portfolio by allocating investments to blue-chip stocks. A good-quality investment depends on an investor's financial needs, investment goals, diversification goals, risk appetite, and investment type.

Blue chips can play a significant role in an investor's stock portfolio. These categories of companies have the ability to provide a useful combination of growth and value characteristics, which in turn balance the returns even during the ups and downs of the market caused by economic crises, financial debacles, and market volatility.

Investing in such companies undoubtedly benefits investors due to their consistency in performance, strong fundamentals, and regular dividend income-generating tendency. Reinvesting dividends enhances the power of compounding, which is always a surplus benefit for a better yield.

How to Identify Blue Chip Stocks?

Blue-chip is also known by another name, large cap. The S$P/ASX 100 (XTO) is Australia’s premier large-cap index, which contains 100 blue-chip stocks. Let’s look at some of the ASX blue-chip stocks as follows:

RIO Tinto Ltd. (ASX: RIO), which has a market cap of $42.46 billion,
BHP Group Ltd. (ASX: BHP) has a market cap of $224.01 billion.
Westpac Banking Corporation (ASX: WBC) has a market cap of $75.55 billion. 

Pros of Investing in Blue Chip Stocks

Here are the several pros and cons of blue-chip stocks, as follows:

Dividend: Many blue-chip stocks may typically pay out regular dividends; however, not all blue-chips pay regular, high dividends.
Low volatility: A blue-chip stock tends to be less volatile than small-cap or mid-cap stocks, which help in controlling the stock's portfolio return but degrade it.

Less downside risk: An investor can expect a relatively smaller loss with a blue-chip stock compared to small and mid-cap companies. For instance, if the market falls by approximately 10%, then a portfolio drop could be expected because a large portion of assets are in blue-chip stocks.

Stable long-term returns: pure long-term investors generally prefer to buy and hold these categories of investments for a long time because they are financially sound companies with a history of strong returns. Therefore, for safety concerns and regular systematic return points, investors find it comfortable buying and holding such companies for a long time.
Well regulated: The large companies generally follow all the rules and regulations that come with being a publicly traded stock, which helps protect the investors’ money and confidence.

Cons of Investing in Blue Chip Stocks

Let’s now look at the cons of investing in blue-chip companies, as follows:
Low growth rate: Generally, blue-chip stocks have a low growth rate because the risk is low. Investors in the stock market normally tend to look for high returns with low to moderate risk.
Less ability to outperform the index: Investing in blue-chip stocks alone can make it very difficult to beat the index return.

Frequently Asked Questions (FAQ)

What is the best blue chip stock to look at?

Some of the best blue-chip stocks to look at are: RIO Tinto Ltd. (ASX: RIO), which has a market cap of $42.46 billion, BHP Group Ltd. (ASX: BHP) has a market cap of $224.01 billion. Westpac Banking Corporation (ASX: WBC) has a market cap of $75.55 billion. (Note: market cap as on 12 September 2023).

Are blue chip stocks a good investment?

A peculiar type of investor, who is highly conservative, has a low risk appetite, and is generally happy with the systematic return year on year with regular dividend income, is suitable for investors.

What blue-chip stocks pay the highest dividends in Australia?

Woodside Energy Group Ltd. (ASX: WDS), with a market cap of $71.56 billion, has an annual dividend yield of approximately 9.96%. BHP Group Ltd. (ASX: BHP) has a market cap of $223.99 billion and an annual dividend rate of approximately 8.86%. (Note: market cap as of September 12, 2023)

What are the disadvantages of blue-chip stocks?

The growth rate is minimal in comparison to other category of companies like mid cap and small cap. The capital requirement is very high. Blue-chip has lessor ability to outpace the index, an also during rally midcap and small cap performs with supernormal returns, while blue-chips provide standard normal return.

Which blue-chip stocks have fallen the most?

Mineral Resources Ltd. (ASX: MIN) has dropped by 5.21% in the last 1-year (price taken from September 12, 2022, to September 12, 2023), while the S&P/ASX100 (ASX: XTO) has increased by 4.07% for the same period.