Roger Wohlner is a writer and financial advisor with over 20 years of financial services experience. He writes about financial planning for Wealthsimple and for a number of financial advisors. His work has been published in Investopedia, Yahoo! Finance, The Motley Fool, Money.com, US News among other publications. Roger owns his own finance blog called 'The Chicago Financial Planner'. He holds an MBA from Marquette University and a Bachelor’s degree with an emphasis on finance from the University of Wisconsin-Oshkosh.
There are large cap stocks, small cap stocks, domestic stocks, and international stocks. But the single category of stocks that gets the most attention is probably “blue chip” stocks.
What are blue-chip stocks?
If a public company is a well-known, household name, then its stock is probably considered “blue chip.” Closely tracked by the financial media, these stocks are generally large capitalization, widely held stocks and are included in stock market benchmarks like the S&P 500 and the Dow Jones Industrial Average.
List of blue-chip stocks
These stocks are often considered to be blue-chip stocks and serve as good examples:
Abbott Labs
Abbott Labs is a diversified healthcare company that manufactures blood glucose monitors, generic drugs, various diagnostic devices, and other healthcare products. The company has increased is dividend per share each year since 2013. The stock currently sits just below its all-time high price achieved earlier in 2019. Through April 30, 2019, the stock’s average annual return for the trailing three years was 28.69% and was 16.97% for the trailing five years, both exceeding the returns of the S&P 500 index over the same time periods.
Adobe Systems
Adobe Systems is a digital media company providing content creation, digital management, digital marketing, and advertising software and services to creative professionals and marketers. The company’s share price sits just below its all-time high achieved earlier in 2019. The stock pays no dividend. Through April 30, 2019, the stock’s average annual return for the trailing three years was 45.34% and was 36.21% for the trailing five years, both well in excess of the returns of the S&P 500 index over the same time periods.
Alphabet
Alphabet (Google) is the largest search engine provider. The stock currently stands 11.58% below its all-time high level. Through April 30, 2019, the stock’s average annual return for the trailing three years was 19.20% and was 17.52% for the trailing five years, both exceeding the returns of the S&P 500 index over the same time periods. The three-year returns are above those for the average technology firm according to Morningstar, the five-year returns are slightly below the average level. The company started paying a dividend in 2016.
Amazon
Amazon is a dominant player in online shopping that expanded to brick-and-mortar businesses with its acquisition of Whole Foods in 2017. Through April 30, 2019, the stock’s average annual return for the trailing three years was 42.94% and was 44.66% for the trailing five years, both solidly ahead of the returns of the S&P 500 index over the same time periods. The stock began trading in 1997 at under $2 per share. It closed at about $1,852 on May 19, 2019, though it currently stands about 9% below its all-time high level. The company does not pay a dividend to shareholders.
Apple
Apple is the well-known maker of the iPhone and the Mac computer among other products. Its stock has been an outstanding performer over time, however the stock price is off about 19% from its all-time high, reached in 2018. Through April 30, 2019, the stock’s average annual return for the trailing three years was 30.51% and was 20.29% for the trailing five years, both solidly ahead of the returns of the S&P 500 index over the same time periods. The current dividend yield is about 1.57%, with the dividend per share increasing steadily over the past five years.
Berkshire Hathaway
Berkshire Hathaway is probably most associated with its legendary CEO Warren Buffet. The company has a number of insurance subsidiaries, including Geico and Gen Re, that account for about one-third of the company’s pre-tax earnings. The company also invests in the shares of many other companies. (Some have likened it to a mutual fund.) The company pays no dividend. Through April 30, 2019, the stock’s average annual return for the trailing three years was 14.07% and was 10.96% for the trailing five years, both slightly below the returns of the S&P 500 index over the same time periods.
Facebook is a major social media and social networking platform that has faced heavy criticism the past several years over claims it misuses user data. The share price has increased about six-fold since it began trading as a public company in 2012. The company currently does not pay a dividend to shareholders.
Home Depot
Home Depot is the world’s largest home improvement retailer. Through April 30, 2019, the stock’s average annual return for the trailing three years was 17.07% and was 22.49% for the trailing five years, both above the returns of the S&P 500 index over the same time periods, and roughly in line with the shares of other home improvement stores.
McDonalds
McDonalds is one of the leading fast-food restaurant chains in the world. Through April 30, 2019, the stock’s average annual return for the trailing three years was 18.31% and was 16.36% for the trailing five years, both above the returns of the S&P 500 index over the same time periods. The number of outlets continues to grow. The company is in the midst of a program to return more capital to its shareholders, and the dividend per share has increased steadily since 2014. The dividend yield currently stands at 2.18%.
Microsoft
Microsoft is a major technology company and the largest single component of the S&P 500 index. The company’s shares currently stand just shy of it’s all-time high reached earlier in 2019. The quarterly dividend payout has steadily increased since 2014, the stock’s current yield stands at 1.41%. Through April 30, 2019, the stock’s average annual return for the trailing three years was 39.38% and was 27.76% for the trailing five years, both well above the returns of the S&P 500 index over the same time periods.
There are of course hundreds if not thousands of other blue chip stocks you might want to consider. Be sure to do your research before reaching an investing decision.
High dividend blue-chip stocks
Dividends can be a great benefit to stockholders and historically have contributed a significant portion of the return of stocks over time. However, sometimes a higher-than-normal dividend yield can be the result of a drop in the stock’s price.
Additionally, stocks with a higher than normal dividend yield are not a substitute for bonds or other fixed income vehicles. Dividend-paying stocks are still stocks and will likely be subjected to the same risks as the rest of the stock market. Here are some examples of blue-chip stocks with high dividend yields:
Altria Group, originally known as Phillip Morris, is a holding company that deals in cigarettes, beer, and wine. The current dividend yield is 5.92%, significantly above that of the S&P 500 index, which currently stands at about 1.8%. In part, this is due to the stock’s price being off its 2017 highs by about 33% at this writing. This is combined with steady increases in the dividend per share amount since 2014. The company’s dividend payout ratio to shareholders is about 80% due to their relatively low need for capital reinvestment.
AT&T is a leading player in, telephone, internet and cable services. The stock’s current yield stands at 6.35%. Through April 30, 2019, the stock’s average annual return for the trailing three years was -1.68% and was 2.64% for the trailing five years, both well below the returns of the S&P 500 index over the same time periods. The dividend per share has shown steady, but small, increases each year since 2014.
Chevron is one of the world’s leading integrated oil firms. The current dividend yield is 3.83%. Through April 30, 2019, the stock’s average annual return for the trailing three years was 9.26% and was 2.47% for the trailing five years, both below the returns of the S&P 500 index over the same time periods, but better than most firms within their industry group. The company has shown small, but steady increases in the dividend per share each year since 2014.
IBM is an iconic tech company. Its shares are currently down about 38% from their all-time high reached in 2013. Through April 30, 2019, the stock’s average annual return for the trailing three years was 2.71% and was -3.11% for the trailing five years, both below the returns of the S&P 500 index and the average for their industry peer group of stocks over the same time periods. The company has increased its dividend per share each year since 2014, the current yield on the stock stand at 4.71%.
Investing in blue chip stocks
Investing directly in blue chips or any individual stocks can be done by purchasing shares via a brokerage firm. You will want to assess the merits of investing in each company and set parameters, such as a target price. While the term “blue chip” generally denotes major companies, being considered a blue-chip stock does not ensure that the stock will perform well over all periods of time.
Beyond investments in individual blue chip stocks, there are many mutual funds and ETFs that invest in blue chips. Some of these strategies include stocks that meet set criteria for having increased their dividends annually. The ability to steadily increase the dividend payout is seem by many as a sign of a company’s financial strength.
Many large cap index mutual funds and ETFs inherently hold a number of blue-chip stocks, for example any index fund that tracks the S&P 500 index.
Investing in blue chips stocks in not an all-or-nothing decision. These investments can be part of a well-diversified investment strategy implemented on your own, or via a financial advisor or robo advisor.
Has all this talk about stocks made you keen to get started? Still have questions? That’s normal, and we’re here to help. Wealthsimple will help you plan for your financial future and get you acquainted with the ins and outs of investing, all at a low cost and with professional financial advice. Sign up here to get started.
Last Updated June 13, 2019
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