The term is used for financially stable companies with a good reputation, and who are well established in their industry. A blue-chip company is expected to be non-cyclical and should deliver attractive profits in good as well as in bad times. Typically, the company is among the top three in its industry with a well-respected brand. The term, as such, originates from poker.
It is complex to define what is a blue-chip company. The Dow Jones index may be guidance since it is supposed to include US blue-chip companies, such as Apple, Coca-Cola, Intel, and Microsoft.
Shares in blue-chip companies are considered to have a lower risk compared to non-blue-chip. They should have solid profitability and regularly pay dividends to their shareholders. Common investors in blue-chip shares are institutional investors managing public money, such as pension funds.
The opposite of blue-chip is the so-called penny stocks, which typically have lower and less stable share price. Penny stock companies will regularly not pay dividends to their shareholders.
Shares in blue-chip companies are, of course, not unaffected by major, adverse events impacting the stock market – for example, during a stock market crash.
Of course, a blue-chip company can suffer from challenges other than a general stock market decline, make losses, and in the worst case, go bankrupt. There are several well-known examples where reputable businesses have experienced severe problems during disruptive market changes. An example is digitali
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