Explanation:A blue-chip stock is named after the highest valued chips in poker because these companies are the most valuable in the world and have a market cap of several billion dollars. They also have a reputation of excellent performance even during turbulent times, strong history of earnings growth, and strong brand name. Although a dividend payment is not the main characteristic of BCS companies, well established, leading companies typically have a long-standing record of rising dividend payments and increasing shareholder value. Furthermore, these large companies are components of reputable market indexes, including the Dow Jones Industrial Average, the Standard & Poor’s (S&P 500) and others.
In a nutshell:
- Blue chip stocks are huge companies with excellent reputations, often including some of the biggest household names.
- Investors turn to blue chip stocks because they have dependable financials and often pay dividends.
- There is a perception among investors that blue chips can survive market challenges of many kinds; while this may be largely true, it is not a guarantee. For this reason, it's crucial to diversify a portfolio beyond only blue-chip stocks.