The Best Blue Chip Stocks to Invest in Now Share These Traits

The best blue chip stocks to invest in now have strong reputations, a history of success, and stock characteristics that lead you to believe that you can hold them indefinitely

The general definition of a blue chip is a company with a national reputation for quality, reliability and the ability to operate profitably in good times and bad.

We believe investors will profit most, and with the least amount of risk, by putting the bulk of their stock portfolios in shares of top blue chip companies—those that are well-established, with strong balance sheets and steady earnings and cash flow. These are companies that have bright prospects in healthy and growing industries. The best blue chip stocks to invest in now have certain traits that we share below.

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.

Blue chip stocks to invest in now have a sound reputation

Many companies acquire a blue-chip reputation by displaying the qualities that the definition suggests.

In plain English, when you ask, “what are blue chip companies?” the answer is usually a company you already know. Companies that have stood the test of time, and pose less risk to an investor even in the worst of financial times, are blue chip companies. Coca-Cola and Apple are two good examples.

When assessing blue chip companies, you need to ask: What are they doing to remain vital? The best of those 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 volatile markets. And the best ones 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.

Blue chip stocks to invest in now give you reason to hold for a long time

The best stocks to hold in your portfolio all have one thing in common: They give you reason to believe they might be worth holding on to indefinitely.

Most of these stocks have an established business and a history of sales gains, plus some earnings, if not dividends. To put it more simply: these stocks have a clear business plan that seems to be working.

These are the stocks we put in our clients’ portfolios at Successful Investor Wealth Management. Though we think they are worth holding on to indefinitely, we keep an open mind. After all, they are subject to the usual risks. Competitors can overtake them. Expected contracts can fall through. They can lose key employees, run into union or regulatory problems, and so on.

Top blue chips have a long-term record of paying dividends

A company with a long-term record of paying dividends is generally one that is most deserving of the “blue chip” label in its 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.

That’s not to say there won’t be surprises that affect every company in a particular industry. But well-established, dividend-paying stocks have the asset size and financial clout—including solid balance sheets and strong cash flow—to weather market downturns or changing industry conditions.

Top Canadian dividend stocks offer both capital-gain growth potential and regular income. In fact, dividends are likely to still be paid regardless of how quickly the price of the underlying stock rises. What’s more, dividends from Canadian companies come with a tax credit. This cuts your effective tax rate.

Use our Successful Investor approach for finding blue chip stocks to invest in now

To practice the Successful Investor method, you need to first get acquainted with a number of well-established stocks with a history of earnings and, in most cases, dividends. You choose your yearly purchases from this list, based on their fundamental appeal. You also take care to spread your money out across most if not all of the five main economic sectors: Manufacturing, Resources, Consumer, Finance and Utilities.

Some of your selections will seem particularly attractive in light of the value they offer, based on earnings and balance sheet information. Other selections will cost more in relation to these measures, but will make up for it with better growth potential. So, rather than aim for either a value or growth focus in your portfolio, you’ll have some of each.

You also take care to downplay or avoid stocks that are in the broker/media limelight. Some stocks work their way into the limelight because they are profiting from an investment fad. Some get there through stock promotion.

Some stocks in the limelight are good businesses that deserve attention. But the limelight blows their appeal out of proportion. This builds up investor expectations for these stocks, often to unsustainable levels. Some limelight stocks live up to these heightened expectations, or even exceed them. But most limelight stocks eventually stumble. When the inevitable disappointments emerge, stock price downturns can be sudden and brutal. Some are permanent. That’s why these stocks should make up at most a modest part of your portfolio.

How often have you encountered a stock that had a blue-chip reputation but was not operating like a blue-chip investment? 


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