Blue Chip Stocks
The root of the term “blue chip” stems from the game of poker, as the blue chips represent the highest value. Investing in blue chip stocks can give you an additional measure of safety in today’s turbulent markets.
Pat McKeough believes investors will profit most, and with the least amount of risk, by putting the bulk of your stock portfolio in shares of 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 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 or unit price of the investment. It’s an indicator we pay especially close attention to when we select stocks to recommend in our investment newsletters.
We feel most investors should hold the largest part of their investment portfolios in securities from blue chip companies. All these stocks should offer good “value”—that is, they should trade at reasonable multiples of earnings, cash flow, book value and so on. Ideally, they should also have above average-growth prospects in expanding markets.
Meanwhile, when investing in any type of stock, at TSI Network we recommend using our three-part Successful Investor strategy:
1-Invest mainly in well-established companies;
2-Spread your money out across most if not all of the five main economic sectors (Manufacturing & Industry; Resources & Commodities; Consumer; Finance; Utilities);
3-Downplay or avoid stocks in the broker/media limelight.
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We think investors will profit most — and with the least risk — by buying shares of well-established, dividend-paying companies with sound business prospects. These are companies that have strong positions in a healthy industry. They also have strong management that will make the right moves to remain competitive in a changing marketplace. A well-established company with a long-term record of dividends provides a measure of safety for investors. 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 dividends, or it doesn’t. That’s not to say that there won’t be surprises that affect every company in a particular industry. But well-established, dividend-paying stocks have the asset size and the financial clout — including solid balance sheets and strong cash flow — to weather market downturns or changing industry conditions....
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