It’s no secret that blue chip stocks are a favorite of investors around the world. They are certainly part of our strategy here at InvestmentU as well. These safe, established, and many times dividend paying companies have proven their worth in both bull and bear markets. So let’s take a look at the best blue chip stocks of 2020.
What Are Blue Chip Stocks?
A blue chip stock is a representation of a highly valued financially sound entity that is nationally respected, especially on Wall Street. A blue chip company is known for selling a variety of products and services of sound quality. They have the ability to be able to continue to operate profitably during tough economic times and in some of the most turbulent conditions therefore they are recognized for their long tradition of stability and steady growth performance.
In fact, the term ‘blue chip’ associated with a company has its beginnings aligned with the blue chip in poker. In the game of poker, the blue chip has the highest value. Therefore, a blue chip company is recognized for having a high value in their respected sector (usually in the top 3).
The term itself began practical use in the business world in 1923. An employee at Dow Jones, Oliver Gingold, jokingly deemed stocks trading at $200 or more per share to be ‘blue chip’ stocks. From that point on, the term ‘blue chip’ stuck. However, blue chip stocks do not necessarily have the highest price or value. They are simply companies that are associated with high quality and sustained durability over a long period of time.
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Understanding Blue Chips
Blue chips maintain a highly respected market index or average. The Dow Jones Industrial Average, S&P 500, NASDAQ 100, as well as a few other international indexes contain a nice mix of these highly respected stocks. There is no definitive rule that qualifies one to be recognized as a blue chip stock but analysts have accepted a loosely defined benchmark as a company that has a market cap of approximately $5 billion.
Most companies of this type are considered to be multinational firms that have been in operation for a significant number of years such as:
Disney (DIS)
Coca-Cola (KO)
Walmart (WMT)
McDonald’s (MCD)
Salesforce (CRM)
Nvidia (NVDA)
Microsoft (MSFT)
These stocks have established a solid brand and have survived the turbulence of various economies. That makes them lucrative and desirable to be included in a portfolio.
Blue chip stocks generally experience less volatility versus shares of stocks that do not have the blue chip status. These stocks have a high frequency of being traded by large institutional investors and individuals alike. Hence, when an investor needs cash quickly, they can execute a trade with full confidence knowing that a buyer will be available.
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A company with the blue chip stock designation typically has little to no debt, a respected debt-to-equity ratio (D/E) , a higher than normal return on equity (ROE) and a nice return on assets (ROA). Their balance sheet is solid with excellent fundamentals, having highly liquid positions. Blue chip stocks are recognized with an investment grade bond rating. Many companies that fit this criteria have a long history of consistent and rising dividends.
Blue Chip Stocks List
1. Berkshire Hathaway (BRK.B, BRK.A)
Berkshire Hathaway has a reputation of being cash rich while exercising exceptional patience. Their “mode of operation” is to secure family-friendly deals from companies that are in need of immediate financial support. Berkshire Hathaway has over $128 billion in cash available to be invested in today’s market.
Dividend Payout: No
2. Texas Instruments, Inc. (TXN)
Known for their graphing calculators, Texas Instruments has a history of growing dividends and share buybacks. They are also the largest producer of analog semiconductor products in the world. As technology continues to impact our society, Texas Instruments will continue to be a mainstay on our Blue Chip Stocks list.
Annualized Dividend Payout: $3.60 (paid quarterly)
3. AbbVie (ABBV)
AbbVie’s recent acquisition of Allergan (AGN), the owner of Botox, is one of the main reasons they made our list. Currently trading at nine times forward earnings makes this an undervalued company in the early stages of 2020. The drug company has a consistent record of outperforming in bull markets and recessions.
Annualized Dividend Payout: 4.72% (paid quarterly)
4. General Mills (GIS)
General Mills has long been a favorite of investors. A mainstay breakfast brand throughout the U.S. with high dividend payouts has helped this blue chip stock maintain consistent gains over its 40 year stock history.
Annualized Dividend Payout: $1.96 (paid quarterly)
5. Facebook (FB)
Analysts anticipate Facebook to yield 41% earnings per share in 2020. This is considered to be a long-term investment (3 to 5 years), but the anticipated return is well worth the investment. With acquisitions like Oculus VR, Instagram and WhatsApp, Facebook continues to impress as one of our best blue chip stocks.
Dividend Payout: No
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High Dividend Blue Chip Stocks
As mentioned before, blue chip stocks have a tremendous amount of value and are relatively “safe” investments. Many blue chip stocks have a consistent record of paying dividends. These companies typically have rising dividends over many decades, a tremendous amount of cash flow and are fundamentally sound.
One of the best ways to build generational wealth with strong returns is with high dividend stocks. The dividend that these blue chips payout allows for more secure investments and produces a sound financial portfolio. Some of these include:
• Cisco Systems, Inc. (NASDAQ:CSCO)
• The Coca-Cola Company (NYSE:KO)
• Caterpillar, Inc. (NYSE:CAT)
• Chevron Corporation (NYSE:CVX)
• Verizon Communications, Inc. (NYSE:VZ)
Summary
So, what are blue chips stocks? There is no definitive criteria as to what establishes a blue chip stock. Theoretically, the criteria is solely based upon the evaluator…but most experts agree on these simple blue chip takeaways:
-An established and highly respected corporation that has sustained the test of time.
-Safer investment due to consistent growth and a record of success.
-Although blue chip stocks are a safe investment, they are not immune to volatility and disappointment.
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