Blue chip stocks are often thought of being dull and boring. The Wal-Marts, General Electrics and Johnson and Johnson's of the market lack some of the excitement and appeal of the Apples, Googles and First Solars of the market, but they certainly provide some solid strength to any portfolio as well as a host of other benefits, some of which we will outline here. So while these types of securities clearly lack the "wild ride" variability that more speculative investments bring to your investment, they do offer something few other assets in other asset classes offer: consistency. So, without dragging this out any longer, here are three key benefits that add tremendous value to the investor who holds blue chip securities.
1. Dividend potential. Arguably one of the biggest attractions to blue chip stocks is that many of them will pay dividends. While the dividend yields will vary from one security to another, the fact that they offer the potential for income throughout one's tenure as a shareholder provides the investor with added security during periods of heightened market sensitivity. And of course, in periods following market turmoil, dividend paying securities become all that more attractive. Wal-Mart, GE, and J&J pay dividends of $1.21, $1,20, and $2.16 respectively, ranging from yields of 2.3% to 3.7% at the time of writing. (It could be further argued that many fixed income securities do not pay such attractive yields).
2. Industry tenure. A lot of blue chip securities are in fact leaders in their segments. This makes them a lot more stable and better capitalized than value plays or other more-speculative securities in the same segment. The key benefit to good capitalization is that these companies are able to invest during periods when other companies are cutting back, as well as weather the economic storms that happen to present themselves through a company's tenure. In turn, this results in less upward movement as these companies tend to invest more conservatively; but during periods of uncertainty, such behaviors are well-rewarded by the market and result in less losses for the investor.
3. Longevity. Most blue chip stocks have proven themselves over the course of time. For this reason, many of them have become known as defensive stocks, meaning they are often sought during periods of economic uncertainty. The reason for this: they have longevity on their side, they are well managed, well diversified and well respected in the investment community. They often make up the core holdings for most actively managed investment funds and likewise make for solid, core investments in an individual's portfolio as well.
As demonstrated above, blue chip stocks add value to one's portfolio by providing benefits that many other securities and stock types cannot offer. They provide a solid foundation on which to plan one's investment goals and by virtue of these benefits allow many investors to invest in specialty classes that can provide the types of returns and variability that the blue chip portion will weather quite well.
Chris has more than 17 years of financial services experience. He currently manages a website about Hot Tub Enclosures at Hot-Tub-Enclosures.com as well as a website about Outdoor Pool Furniture at OutdoorPoolFurniture.net.
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