Looking for the most stable stock investments for your portfolio? Start with blue chips

Blue chip stocks are some of the most stable stock investments—and here’s how to find the top ones for a conservative portfolio

A company with a long-term record of paying dividends is generally one that is most deserving of the “blue chip” label in the traditional sense. Dividends, after all, are much more stable than earnings projections. More important, dividends are impossible to fake—either the company has the cash to pay them or it doesn’t.

High-quality blue chip companies are good companies to invest in. Blue chip companies are typically defined as firms whose stocks have a national reputation for quality, reliability and the ability to operate profitably in good times and bad. They are often some of the most stable stock investments.

True Blue Chips pay off

Learn everything you need to know in 'The Best Blue Chips for Canadian Investors' for FREE from The Successful Investor.

Canadian Blue Chip Stocks: Bank of Nova Scotia Stock, CP Rail Stock, CAE Inc. Stock and more.

Finding the most stable stock investments in blue chips can still lead to long-term profits

You can still look at blue chips as the strongest and most secure stocks on the market. Just be sure you look at the stock’s qualities and not just at the label. That’s because some blue chips only get their reputation through a strong public relations effort or by being in the right industry or business situation at the right time and place.

When trying to assess which blue chip companies are good companies to invest in, you need to ask: What are they doing to remain vital? The night companies hold strong positions in healthy industries. They also have strong management that will make the right moves to remain competitive in a changing marketplace.

Stocks like these give investors an additional measure of safety in today’s volatile markets. And the best ones—the ones to invest in—offer an attractive combination of low p/e’s (the ratio of a stock’s price to its per-share earnings), steady or rising dividend yields (annual dividend divided by the share price) and promising growth prospects.

For a true measure of stability, focus on those companies that have maintained or raised their dividends during economic or stock-market downturns. That’s because these firms leave themselves enough room to handle periods of earnings volatility. By continually rewarding investors, and retaining enough cash to finance their businesses, they provide an attractive mix of safety, income and growth.

In fact, it’s realistic to assume dividends from blue chip companies will continue to contribute around a third of your total return.

Look for these five indicators of blue chips to invest in some of the most stable stock investments around

  1. A history of long-term success. These companies are the most likely to keep paying and increasing their dividends.
  2. A current healthy financial situation for the company. If a company is doing well, has done so consistently, and shows signs of growth, these factors are indicative of a stock that will keep paying a dividend.
  3. A current dividend. If a company currently offers a healthy dividend, this is a good sign of its potential to continue offering a steady dividend.
  4. A strong hold within the company’s industry. Look for companies with a strong hold on a growing market and a unique product or service what competitors offer.
  5. Growth and income. The best dividend-paying stocks offer both capital-gains growth potential and regular income from dividend payments.

You will have a strong selection of blue chip stocks in your portfolio when you follow our three-part investing program.

  • Hold mostly high-quality, dividend-paying stocks.
  • Spread your money out across most if not all of the five main economic sectors: Manufacturing & Industry, Resources & Commodities, Consumer, Finance and Utilities.
  • Downplay or stay out of stocks in the broker/media limelight.

These three safeguards will tend to limit your losses at the worst of times. But over long periods, they also let you profit nearly automatically.

Utilize a conservative approach to invest in stable businesses

Conservative investing is an investment strategy that involves a focus on lower-risk, predictable and stable businesses. This strategy typically involves the purchase of blue-chip stocks and other low-risk investments. A conservative investing approach also means building a well-balanced portfolio gradually, over time. The number of stocks in your portfolio will depend on where you are in your investing career.

Long-term stock investment strategies aren’t built to make a fast dollar. They are built to prosper over time, and most importantly, teach you how to pick the right stocks.

In our view, your goal as an investor, particularly if you follow a conservative investing strategy like the one we recommend, is to make an attractive return on your investments over a period of years or decades. Failure means making bad investments that leave you with meagre profits or losses.

Some blue chip companies come under scrutiny due to controversial decisions they make. How do you handle this reality in your blue chip investing?

Are blue chips worth the premium or do you think there are lower-cost investments with just as much stability and potential?


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