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What are blue chip companies? What are its characteristics and importance?

Sep 21, 2015 17:23 IST

    A Blue chip company is a corporation with national reputation for quality, reliability and the ability to perform profitably in good and bad market conditions. These companies are having a strong financial background with a solid track record for producing earnings with only a moderate amount of debt.  Such organizations are considered stable because these have been for years in the business.

    Bharti Airtel Ltd., BPCL, Dr. Reddy, HDFC, Reliance industries Ltd., Infosys Technologies Ltd., ICICI Bank Ltd. Are some major examples of Blue chip companies.

    Characteristics: - These companies have following characteristics: -

    a. These are generally large companies.
    b. These are generally older companies.
    c. They are generally very credit-worthy.
    d. They have records of long term, stable growth.
    e. They pay regular dividends and such dividends grows over time.
    f.  They have impressive growth during economic downturns.
    g. They have reputed management and industry leaders.

    Importance: Stocks of blue chip companies are considered good for long term investments because they tend to offer consistent returns. Higher stock prices and lower yields usually balance this observed lower risk. Investment in purchasing shares of blue chip companies can be done directly. Investors can also make investments in derivative blue chip instruments that provide exposure to a variety of blue chip stocks. Diamonds is a type of blue chip instruments, which are often called as exchange-traded securities.

     

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