Introduction
Blue chip stocks refer to the shares of well-established, large, reputable and widely recognized companies. Generally these companies have high valuations, consistent performance and ability to pay regular dividends.
Notable Characteristics Of Blue-Chip Stocks
* They are market leaders in the industry
* They are less riskier than small-cap stocks
* They have a long record of revenue growth
* Most of them pay regular dividends
* Shares prices are higher than other types of stocks
Pros Of Blue-Chip Stocks
Major advantages or benefits of investing in blue-chip stocks are as follows:
1. Reliable And Stable
As we know that these companies are well-established have sound financial health and consistent performance, blue-chip stocks are more reliable and stable than medium or small-cap stocks.
2. Regular Dividends
Another advantage of blue-chip stocks is that companies pay steady dividends to the investors. So, blue-chip stocks ensures consistent returns.
3. Highly Liquid
Blue-chip stocks can be easily bought or sold in the market because of high demand and large trading volume. So, these shares are liquid in nature.
4. Long-Term Growth Potential
Because of steady appreciation, market dominance, public trust and transparency, blue-chip companies have long term growth potential than small companies.
5. Less Volatile
Low volatility is another plus point of blue chip stocks. Stock prices do not fluctuate quickly like small caps or penny stocks
6. Less Riskier
There is lower investment risk because blue chip companies are well established, have strong brand and stable than small companies.
Cons Of Blue-Chip Stocks
Some of the major drawbacks or disadvantages of blue chip stocks can be pointed out as follows:
1. Slower Growth Potential
As we know that blue chip companies are well established and matured, their growth potential is limited. So, these stocks are not suitable for those investors who are seeking explosive gains in short period.
2. Larger Initial Investment
Blue-chip stocks are expensive to buy because they are traded at a premium price, so it requires larger investment to buy these stocks or investors have to limit the number of shares. Therefore, it may not be a suitable investment option for small investors.
3. Risk Of Overvaluation
These stocks can be overvalued because of the popularity and consistency that may lead to reduce the future earning potential.
Also Read
Pros and cons of dividend stocks
4. Not Suitable
Blue-chip stocks may not be suitable for those investors who seek quick gain because these stocks are not attractive as high-volatility growth stocks.
5. Opportunity Cost
Investors who invest in blue-chip stocks may miss out the chance of higher returns from growth-stocks, small-cap stocks or mid-cap stocks.
