Blue chip stock investing can be easier if you use the pointers we share in this article
Aim above all for investment quality and diversification in your blue chip stock investing.
The majority of the stocks we regard as blue chips reward investors with both dividends and capital gains. Confirming a solid, sustainable dividend yield is one of the keys to picking the best blue chip stocks. Keep reading to discover five tips for blue chip investing success.
Buy only the best
Blue chip stocks are your best promise of strong returns for years to come. But some are riding on past reputation. Pat McKeough’s free report shows how you where to find the best of Canada’s blue chips. And he identifies 7 of his top blue chip recommendations.
Using defensive stocks as part of your blue chip stock investing strategy can protect you against downturns
Defensive stocks in the Consumer sector can provide the most effective protection against economic downturns. That’s a key difference between Consumer stocks and companies in the Manufacturing & Industry or Resource sectors, which are far more sensitive to the ups and downs of the economic cycle.
As a general rule, resource stocks provide the most effective hedge against inflation because they directly gain from rising prices of the commodities they produce. However, while it pays to be aware of these general tendencies, you should resist the temptation to fine-tune your portfolio according to theories or predictions about inflation and economic downturns.
In blue chip stock investing, it’s important to sell if you doubt the integrity of insiders
We’ve always believed that investors should sell a stock if they have any doubts about the integrity of the people who are in charge of the company. In other words, if you think a company is run by crooks, you should sell the stock right away, no matter how attractive it seems as an investment.
Over the years, we’ve refrained from recommending, or advised selling, a number of stocks, including blue chips, because we felt their capital structure or promotional materials were designed to make it easy for insiders to mislead or take advantage of the investing public. We didn’t miss much as a result; in fact, we sidestepped some ugly situations.
Insider buying is just one of many signs of investment value in blue chip stocks
All in all, we think it’s a mistake to put too much weight on insider trading, since insiders can delude themselves about their employer just as easily as outsiders. However, it pays to remember that insiders may sell for a variety of personal reasons that have nothing to do with the company. On the other hand, insiders only make substantial buys for one reason—they think the company has attractive investment appeal.
Everybody wants to find the financial philosopher’s stone: the foolproof market indicator that can tell you when or what to buy or sell in 10 minutes a day or less. They will never succeed, however, because no such indicator can ever exist.
How dividends point you to the best blue chip stocks
The best blue chips offer both capital gains growth potential and regular dividend income. The dividend yield is certainly one of the most concrete indicators of a sound investment. It is the percentage you get when you divide the current yearly dividend payment by the share price of the investment. It’s an indicator we pay especially close attention to when we select stocks to recommend in our investment newsletters.
It’s all too easy to sell a stock that looks like it’s headed for a downturn, only to buy another that is headed for a collapse. For that matter, if you make a habit of selling whenever you feel the market’s risk has gone up, you will wind up selling your best stocks way too early.
You can always find a rationale for selling. Market commentators are continually thinking up new ones, based on recent market strength or weakness, historical market patterns, political or economic predictions, changes in tax policies—the list is endless. This is a good thing. After all, you can only buy a stock if somebody who owns it wants to sell.
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