The term “blue chip” derives from the high-valued blue chips in poker – Image Credit: Logan Ingalls (CC by 2.0)
A blue chip stock is a large, well-established company that has performed consistently well for many years. These tend to be highly influential companies, generally market leaders or among the top 3 companies in their sector. While there is no official qualification for blue chip status, they are generally stocks with market capitalization with at least $5 billion and appear on indices such as the DOW and S&P 500. Household names such as Coca-Cola, Boeing, IBM, Wal-Mart and DuPont would all be considered blue chip stocks. The term arises from poker in which the highest value chips are blue.
Blue chip stocks are great for investors because they tend to consistently pay out stable or rising dividends over the course of many years. They also tend to recover more quickly from downturns in the market. Blue chips will almost always be included as core holdings in a diverse portfolio. However, even blue chips can experience turbulence in a storm, as evidenced by the bankruptcies of General Motors and Lehman Brothers during the 2008 financial crisis.
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