СÓÅÊÓƵ

 

You may have heard about the term "Blue chip stocks" and wondered what they are and how to invest in them.

 

Blue chips are large, fundamentally strong, cash-rich, dividend-paying, and reputable companies often leaders in their industry. Due to the low risk, they are a haven for investors.

 

Read on to find out more about the Blue-Chip shares in Australia. Their types, what makes them superior to the rest, their pros and cons, what they are, trading platforms to buy them on the ASX, and much more.

 

If you still need a trading account to buy blue chip stocks, consider , which is used by many investors in Australia and worldwide. You can create an .

 

eToro AUS Capital Limited AFSL 491139. eToro is a multi-asset investment platform. The value of your investments may go up or down. Your capital is at risk. See  and 

 

 

1. What Are Blue Chip Shares?

 

Companies with a large market capitalisation are considered blue chip companies.

 

They are giant industrial, financial, and resource companies with a record of stable earnings over a long period. Blue chip companies have a reliable history of providing the least volatility and consistent returns.

 

The blue-chip companies in the S&P/ASX200 index are predominantly Financials (44%), Materials (17%), and Health Care (12%). Some of the popular ones are:

 

• Property group Goodman in the Real Estate sector. 

• Grocery giants like Woolworths and Coles

• Commonwealth Serum Laboratories in Health Care

• Commonwealth Bank of Australia, National Australia Bank Limited, and Westpac in the financial sector

 

 

2. Are Blue-Chip Shares A Good Investment?

 

The term deposit rate in Australia is below 1%, making it less attractive due to the country's prevailing inflation rate. As a result, money is losing its value over time.

 

On the other hand, blue-chip stocks have demonstrated resilience across market cycles and challenges. Their long-standing financial security makes them a more stable and secure investment compared to small-cap or penny stocks.

 

Many investors find blue-chip stocks worthwhile, especially those with high dividend payout ratios, as they typically offer a dividend yield of 5% and tax benefits through franking credits.

 

With returns surpassing inflation rates, they become a favourable alternative to term deposit rates.

 

 

3. What Are The Different Ways To Buy Blue Chip Shares On ASX?

 

Are you looking to buy blue-chip stocks in Australia? Below are different ways that can help you buy them:

 

 

 

Buy Individual Blue-Chip Shares in The ASX 20

 

Buying a blue-chip share is no different from other shares.

 

You will need to research the market to find the best stocks that align with your investment goals, analyse the company, and evaluate its future potential.

 

Once finalised, place the , or use your  to make the purchase.

 

 

Buy The Index via an ETF

 

This option is suitable for newer investors who are not comfortable analysing individual shares.

 

You can own various blue chips by purchasing an ETF based on the ASX 20. This way of buying shares is convenient and economical compared to buying shares individually, as it reduces brokerage costs per trade.

 

Some of the examples include:

 

 

 

Buy Blue-Chip Stocks Through an Investment Management Firm

 

Investment Management Firms invest and manage shareholders' money per their specific selection strategies. 

 

They provide diversified exposure to undervalued growth companies in the .

 

You can search and invest in a LIC on the ASX.

 

Always seek the help of a professional financial advisor before making any investment decision. Investing carries risk. The above are just some general options for educational purposes. All these options come with risk. This is not financial advice.

 

 

4. Steps To Buy Blue Chip Shares In Australia

 

 on ASX is a quick and straightforward process. You can do it in 4 easy steps:

 

 

Step 1: Choose a Trading Platform and Create an Account

 

Selecting an online share trading platform is the initial step. For this purpose, you can consider , a popular choice among investors in Australia and worldwide. You can create an .

 

eToro AUS Capital Limited AFSL 491139. eToro is a multi-asset investment platform. The value of your investments may go up or down. Your capital is at risk. See  and 

 

 

Step 2: Complete Account Registration

 

Complete your account verification using your identification proofs, bank details, and tax file number.

 

 

 

Step 3: Fund Your Account

 

Deposit funds into your account using supported payment methods such as bank transfer, credit card, or debit card.

 

 

Step 4: Search and Purchase Blue Chip Shares

 

Utilise the to find and purchase the blue-chip shares you're interested in.

 

Refer to the  you can trade on the ASX.

 

 

5. Different Trading Platforms To Invest In Blue Chip Stocks

 

(eToro Service ARSN 637 489 466 Capital at risk. See  and )

 

 

 

6. What Is The Difference Between A Regular Stock And A Blue-Chip Stock? 

 

such as BHP, Telstra, CSL, and CBA are different from regular stocks in the following way:

 

• They are Industry leaders in their respective fields. 

• Large market cap stocks benefit from operational efficiency, favourable financing (debt/equity), acquire competitors in downturns, and leverage collaborations unavailable to smaller firms.

• They are mature, long-running, highly reputable, well-capitalised, and well-established companies with solid financial prospects.

• They have high cash reserves, low or modest debt, and a strong credit rating. 

• They have a competitive and dependable business model and an excellent record of generating good cash flows and returns for investors. 

• They are strong-performing stocks that have given multi-bagger returns over the long term.

• They are consistent compounders, promising future growth and traditionally have long records of paying fixed or increasing dividends.

• They have a history of enduring tough times and rising profits. 

• They have an esteemed management team comprising long-term executives with solid track records.

 

 

7. What Are The Different Types of Blue-Chip Companies In Australia?

 

Blue chip companies spread include:

 

• Banking and Financial Services: These companies constitute a large portion of the top S&P/ASX 50 stocks and have a history of providing high dividends. Blue chip companies in this category include CommBank, Westpac, ANZ, and NAB.

 

• Resources Sector: This is a cyclical sector, and companies in this sector can offer high capital growth, such as BHP Billiton, Rio Tinto, and Woodside Petroleum.

 

• Retail Sector: Companies in the Retail segment usually offer medium-sized dividends to their stakeholders. Some of the popular choices include Wesfarmers, Woolworths, and Coles.

 

 

 

8. What Are Famous Blue-Chip Shares in Australia?

 

The S&P/ASX20 comprises blue-chip stocks across different sectors, such as Financials (44%), Materials (17%), and Health Care (12%).

 

Here are the by market cap:

 

• BHP Group Ltd (ASX: BHP)

• CSL Ltd (ASX: CSL)

• National Australia Bank Ltd (ASX: NAB)

• Commonwealth Bank of Australia (ASX: CBA)

• Westpac Banking Corporation (ASX: WBC)

• Australia and New Zealand Banking Group Ltd (ASX: ANZ)

• Woodside Energy Group Ltd (ASX: WDS)

• Macquarie Group Ltd (ASX: MQG)

• Fortescue Metals Group Ltd (ASX: FMG)

• Wesfarmers Ltd (ASX: WES)

 

Always seek the help of a professional financial advisor before making any investment decision. Investing carries risk. The above are just some general options for educational purposes. All these options come with risk. This is not financial advice.

 

 

9. How Do You Find The Best Blue Chip Shares In Australia?

 

Here are a few considerations that can help you :

 

The companies must:

 

• Make a profit.

• Have a strong balance sheet, zero or negligible debt, and solid cash flow.

• Pay consistent dividends.

• Have a high cash flow return on assets from past investments.

 

 

Look at the company's Price Book and Price Earnings ratios (industry-based). These are indicators to ensure the company is affordable.

 

Identify whether you want capital growth or to generate regular income as dividends. While smaller companies are growth-focused and aim to reinvest their profits into the business, larger companies mostly pay dividends to their investors. Companies with massive growth potential also come with a much higher risk.

 

If you need help setting investment goals, seek financial advice to achieve long-term and short-term financial investments.

 

Decide on an investment time frame as long-term investments of 7 to 10 years ride out periods of market volatility. The stock market is fluctuating in nature.

 

Investors should assess their risk-taking capacity to find blue-chip stocks that match their risk appetite. Pay attention to the benefit of dividends which is the unique selling point of Blue Chip Shares. The average dividend income these stocks provide is around 4.5% a year. (Past performance does not guarantee future results.)

 

You will find many Australian blue-chip shares with good dividends providing a stable source of ongoing income during uncertain times in the market. It is good to check the dividend payments from the previous year before choosing one.

 

Having found the stock that meets your investment objectives and risk appetite, remember to research it before you buy. Look at the company's annual reports, historical performance, and earnings to decide whether it is a value-oriented stock for investment. 

 

Many  allow investors to access research reports and long or short recommendations for several companies, including blue chip ones.

 

 

10. Are Blue-Chip Stocks Good for The Long Term?

 

Yes. Blue chip stocks are the market’s brightest and biggest equities. They are great for in the stock market.

 

Due to familiar businesses, it becomes easier for new investors to research and analyse these stocks. They don’t need extensive knowledge to begin investing in blue-chip investments. However, one must always consider the risk of stock investing before.

 

 

The following traits of blue chips make them ideal for long-term investors:
 

• Well-regulated and governed

• Attractive business model and economics

• Reputable management team with solid track records

• Significant market capitalisation 

• Strong historical performance and profit growth 

• Consistent 6 to 10% net profit margin 

• Low volatility and less risky than other stocks

• Pays dividend

• Strong credit rating

• Financial strength

• Low or modest debt

• Cash-rich companies 

• Excellent record of generating good cash flow and steady long-term returns

 

Blue chips aren't immune to market downturns; however, their large size confers enormous advantages, including outperforming smaller companies and improving their market position. Some of these include:

 

• Businesses operating at scale are more efficient and generate more considerable gains from synergies that can't happen in the case of smaller companies.

• Blue chips have a financing edge over other stocks. Due to lesser debt, more accessible equity, and stability, they command respect and are the most sought investment among investors. 

• Size offers substantial strategic opportunities to large, blue-chip stocks. They can acquire their competitor's significantly smaller companies that struggle during an economic downturn or recession. 

• Due to the financial and business security, they are more appealing to investors during a crisis. 

 

So, is it worth it to invest in the blue chip? Yes, if you are aware of the risk that comes with it. Blue chip stocks have more resources to weather multiple market cycles and economic challenges. Their stability and financing edge attracts investors to choose them for investment over other stocks.

 

While Australia has no official list of ASX blue chips, the best place to begin is the S&P/ASX 20 Index (ASX: XTL). However, before you invest, it is worth understanding your investment goals and risk profile.

 

Investors with a longer investment horizon could allocate a portion to stable blue-chip stocks and the rest to high-risk, high-reward growth-oriented shares. The extended investment period will help level up the higher volatility linked with growth shares.

 

 

11. What Are The Pros and Cons of Blue-Chip Investment?

 

Before investing in blue chip stocks, you must understand their benefits and drawbacks:

  

Pros

 

• Blue-chip stocks are the market leaders in their sector. 

• They generally have proven business models, strong balance sheets, consistent cash flows, and steady returns.

• They are well-regulated and governed.

• They are among the most secure stock investments due to their solid track records and performance history. 

• They are relatively less volatile than individual stocks during the bearish phase of the market. They are also the first to rebound when the market recovers.

• You can buy them via a broker, , and a Mutual Fund or Exchange Traded Fund (ETF) offering a basket of multiple blue-chip stocks. Some of the examples are the Vanguard MSCI Australian Large Companies Index ETF and iShares S&P/ASX20 ETF. 

• They allow earning a better income and grow your capital than other investment instruments.

• Regular and rising dividend payouts make them ideal for those who need an income to live off.

 

 

Cons

 

• Less scope for growth as they are large caps and well established

• May not generate market-beating returns

• Suitable for income-dependent and new investors, but not for High growth and risk-taking investors

 

Always seek the help of a professional financial advisor before making any investment decision. Investing carries risk. Dividend stocks can also be risky and must be researched and understood.

 

 

 

12. Frequently Asked Questions (FAQs)

 

 

Is A Blue-Chip Stock Risky?

 

Blue chip stocks tend to be less volatile and defensive investment vehicles than regular stocks.

 

It makes them a good option for beginner investors who lack time to research individual stocks or are retired.

 

These stocks are great for portfolio diversification to manage risks, with an annual average return of 10%. (Past performance does not guarantee future results.)

 

Always seek the help of a professional financial advisor before making any investment decision. Investing carries risk. Blue-Chip shares are no different to other stocks. There is no guarantee for any returns.

 

 

How Safe Are Blue Chip Stocks?

 

Blue chip stocks are usually large-cap companies offering stable and secure returns and less risk. However, like other stocks, they are heavily influenced by global economic trends, which makes them risky like any other stock.
 

Thus, no blue-chip stock can assure you a return on your investment. However, as these companies are well-established and have solid balance sheets and cash flows, they usually offer their investors consistent long-term returns.

 

However, you must check the company's balance sheet before investing. It will not only help derive the company value but also gives a good idea of its future growth, risks, and reward.

 

 

Do All Blue-Chip Stocks Pay Dividends?

 

No. However, most blue-chip companies on the ASX pay dividends two times a year, including an "interim" dividend and a "final" dividend. Other companies reinvest their entire profits back into the company.

 

Dividend payments represent earnings that help investors safeguard against the adverse effects of inflation. 

 

 

Can You Make Money With Blue Chip Stocks?

 

Yes and No. Blue chips may not offer massive returns but can provide decent returns that beat the general inflation. (no guarantee)

 

Most people buy them for long-term investments, as many of these stocks provide an ongoing income through dividends.

 

 

What Are Some Blue-Chip Stock Examples That Pay High Dividends?

 

Certain , such as BP, GSK, Vodafone, and Shell, offer varying dividend yields.

 

Some stocks provide an attractive high dividend payout, reaching approximately 15%.

 

 

Are Stocks Good For Retirement?

 

Yes. Blue-chip stocks are considered safe investments for youngsters who have started investing for retirement or want to avoid the risks of investing in start-ups or new business endeavours. 

 

These stocks mostly have a higher dividend yield and offer security and stability than others. It makes them excellent long-term investments!

 

Blue-chip stocks have the potential to multiply your money over time. So, if you buy at an optimum time and hold it long-term, you could see significant gains (no guarantee)!

 

However, one must always consider the risk. There is no guarantee to make any return in the stock market, not even long-term. Investing always comes with risk. So always be careful with the amount of money that you invest.
 

 

 

Is Tesla a Blue-Chip Stock?

 

Yes. Tesla (TSLA), the Electronic Vehicle-manufacturer is now a blue chip. Moody’s Investor Research upgraded the company’s credit rating to Baa3 and changed its credit outlook to stable.

 

As per Moody's expectation, the company will remain one of the leading makers of battery electric vehicles with high profitability and an expanding worldwide presence.”

 

 

Is Google a Blue-Chip Stock?

 

Yes. Google is a blue-chip stock. It is a well-managed, established, and financially sound company with solid fundamentals, growing YoY and revenue, and a history of profitability focusing on generating shareholder value via dividends.

 

 

Is Netflix A Blue Chip stock?

 

Yes. Netflix is a famous tech giant that has grown yearly and dominates the US stock market.

 

 

What Is The Average Return on Blue Chip Stocks in Australia?

 

Blue chip stocks offer average returns of around 10 to 15%. (Past performance does not guarantee future results.)

 

These large-cap stocks are ideal for conservative investors for stable earnings during an economic downturn. Stocks of such companies provide security even in highly volatile or slowed-down markets.

 

Also, some blue-chip stocks consistently release steady and increased dividend payments to their investors. These payments will help protect you from the adverse repercussions of inflation and can give appealing returns for investors.

 

So, keeping these stocks for a while could make you money through dividends and a growing portfolio.

 

 

Why Would Someone Not Want To Invest in Blue-Chip Stocks?

 

Blue chips offer numerous benefits. However, they may not be suitable for certain investors due to the following:

 

• They provide less scope for growth as they are already established large-cap stocks

• Their returns could be lower than other stocks

• Their poor dividend yield may not suit investors who depend on dividends for regular income streams.

 

 

What Are The 10 Most Famous Blue Chip Shares in Australia?

 

Here are the ten most famous blue-chip stocks on the ASX:

 

• Commonwealth Bank (ASX: CBA) - is the largest Australian bank by a comfortable margin. 

• BHP Group Ltd (ASX: BHP) is the largest miner globally. With a market cap of $190 billion, it is the largest company trading on the ASX.

• Woolworths Group Ltd (ASX: WOW) - Opened in 1924, the company is a leading supermarket chain in Australia. 

• Woodside (ASX: WDS) – Established in 1954, the company has expanded into Australia's largest independent gas and oil producer.

• Transurban Group (ASX: TCL) – It is another well-known blue-chip company on ASX as it operates the Citylink tollway connecting the prime freeways in Melbourne.

• CSL Limited (ASX: CSL) - With a market capitalisation of approx. $140 billion, CSL is the undisputed leader in the Australian healthcare segment

• Telstra Corporation Ltd (ASX: TLS) – This telecommunications giant is a highly recognisable brand popular among retail investors for its history of paying consistent dividends. 

• Santos Ltd (ASX: STO) – Established in 1963, Santos is the first natural energy and gas company in Adelaide. It has expanded into one of Australia's most prominent companies with a reliable blue-chip share.

• Wesfarmers Ltd (ASX: WES) – Started in 1914, the company has a long history of operating as a cooperative of farmers in Western Australia. It owns several popular Australian brands and has expanded into a diversified retail corporation. 

• Aristocrat Leisure Limited (ASX: ALL) – Last but not least, electronic gambling machine manufacturer Aristocrat is another famous company on the ASX; however, its business may not interest every investor.

 

Always seek the help of a professional financial advisor before making any investment decision. Investing carries risk. The above are just some general options for educational purposes. All these options come with risk. This is not financial advice.

 

 

 

When Should You Buy Blue-Chip Stocks?

 

Blue chips are unique businesses with robust growth-boosting plans in their back pockets.

 

They have exemplary surviving skills that can sustain challenging markets and thrive on the other side.

 

History has reflected that a solid bull market has followed each recession. The current market downturn is expected to follow a similar pattern. It presents a clear opportunity to purchase great stocks at reasonably low prices and enjoy wealth-building returns in the coming years. (no guarantee)

 

Investing in these struggling industry leaders could help you weather the current economic slowdown. It might take some time for the recovery to gain steam.

 

If you plan to buy the stock, ensure the company is fairly valued, run by competent management, and has a healthy dividend-paying ratio.

 

 

How Do Most People Buy Blue-Ship Shares?

 

Investors have several ways to .

 

You can find below two different ways to purchase blue chips shares in Australia:

 

 

Purchase Individual Shares

 

Suppose you want to invest in Australian blue-chip shares in the ASX 20. In that case, you can buy them through a or a broker.

 

You can use your or contact the broker to place the buy order and execute the trade.

 

 

Purchase The ASX 20 Index Through an ETF

 

ETFs are a relatively safer option than buying individual stocks.

 

It helps lower risk by spreading your investment dollars over various companies, not just a single stock. ETFs are an excellent option for those who need more experience or time to analyse individual shares.

 

ETFs trade on the ASX like ordinary shares and imitate the returns of a specific index, like the ASX 20. You can invest in these ETFs on the ASX just as you would invest in a share.

 

 

13. Conclusion

 

Blue chips are ideal for beginner investors eager to enter the stock market. These well-established companies with strong market presence are easier to analyse due to their familiarity.

 

For those with limited knowledge, ETFs present a convenient option to invest in blue chip stocks. They offer an opportunity to benefit from market growth without needing a complex stock-picking strategy.

However, reviewing a company's fundamentals and implementing a proper risk-management strategy is crucial before investing. This approach helps mitigate any risk that could lead to capital loss.
 

Always remember investing carries risk, and this also applies to blue-chip stocks. Seek advice from a professional financial advisor before making any investment decisions.

 

If you still need a trading account to buy blue chip stocks, consider , which is used by many investors in Australia and worldwide. You can create an .

 

eToro AUS Capital Limited AFSL 491139. eToro is a multi-asset investment platform. The value of your investments may go up or down. Your capital is at risk. See  and 

 

Useful Links to Explore:

• How To Become A Commodity Trader In Australia?
• How To Become A Day Trader In Australia?
• How To Invest Money In Australia?
• How To Buy Cryptocurrency In Australia?
• How To Buy Shares Online in Australia?
• How To Become A Forex Trader In Australia?
• How To Buy Index Funds And ETFs In Australia?
• The Benefits of a Professional Year Program (PYP)
• A Complete Guide to Study in Australia
• Types of Education in Australia
• What to Study in Australia?