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Investing in the stock market can feel like being on a wild roller-coaster, and it's not always fun, especially if you don't like taking big risks with your money. But there's a way to make this roller-coaster ride a bit less scary: getting into something called "blue-chip stocks."
Now, let's break it down: Imagine the stock market is like a giant theme park ride, and sometimes it goes up really high, and other times it drops down low. This up-and-down stuff is "volatility," and it can be a bit crazy.
Blue-chip stocks are like the smooth, safe part of the ride. They're like the easy, gentle slopes compared to the crazy twists and turns. These are big, well-known companies that have been around for a long time, like your favorite brands or those that make the stuff you use daily.
So, if you want to invest your money but don't want to feel like you're on a scary roller-coaster, blue-chip stocks might be a good choice. They can help you have a smoother, less bumpy ride while growing your money over time. In this guide, we'll explain why they're a smart pick for folks who like to play it safe with their money.
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Best blue-chip stocks
Here’s a brief look at the best blue-chip stocks, with one of the best parts of each company highlighted. We take a deeper dive into each company below, followed by a summary of some of the key benefits of each.
Company (ticker symbol) | Best for |
Amazon (AMZN) | Growth |
American Express (AXP) | Travel |
Apple (AAPL) | Stock splits |
AT&T (T) | Dividends |
Boeing (BA) | Growth potential |
Coca-Cola (KO) | Dividends |
Disney (DIS) | Growth potential |
IBM (IBM) | Low P/E ratio |
Johnson & Johnson (JNJ) | Diverse products |
Merck (MRK) | Drug sales |
Microsoft (MSFT) | High market cap |
Walmart (WMT) | Regular dividend |
Best blue chip stocks
Amazon
Chances are you’ve bought something from Amazon (AMZN), which is listed on the Nasdaq stock exchange.
While many blue-chip stocks are also dividend stocks, Amazon stands out partly for being such a huge company that doesn’t offer dividend payouts. This isn’t ideal for dividend growth investors, but the stock has generated returns of around 33% per year over the past 10 years, making it a high-quality investment.
Even if it did pay a dividend yield, it might not be enough to make many investors jump for excitement because the share price is so high. Like other technology companies, Amazon uses its cash instead of investing in growth.
And that’s where its value for investors is greatest. It not only sells books and everything else under the sun, but Amazon also provides cloud services, has a streaming channel, and owns a movie studio. It also owns Whole Foods and has plans to expand into media content and health care.
American Express
American Express (AXP) is the best stock in the Dow Jones Industrial Average (DJIA). The company's shares are up 5.59% in the past six months.
American Express clients are generally in higher income brackets, and the company has a large focus on travel and entertainment. AmEx’s Platinum Travel credit card offers various luxury travel experiences to attract travelers.
Apple
Like Amazon, Apple (AAPL) is probably a company you’ve bought something from. It’s a well-known brand and can be a status symbol for some people. Its stock is also worth buying. Why? It just keeps on getting better.
It can be fun to play the “What if” game of “What if I invested in Company X a decade ago? How much would my investment be worth today?” With Apple, this scenario is almost mind-blowing.
A $1,000 investment made in December 2011 would be worth $14,178 today, or a gain of 1,100%. That’s some FOMO to think about.
Apple stock keeps splitting and then rising again. It has split five times since the company went public in 1980. It first split in June 1987 with a split on a 2-for-1 basis. Its stock last split in August 2020 on a 4-for-1 basis and had a huge 7-for-1 basis split in June 2014.
The shares become more affordable to small investors by issuing more shares to current shareholders. A $500 stock price split 2-for-1 gives a shareholder two shares of the stock at $250 each instead of owning one share at $500, hoping that the $250 share price will attract more investors and it will have an easier time growing.
AT&T
AT&T (T) is one of the biggest telecom companies and like many telecom companies, AT&T pays a high dividend. Among the dozen blue-chip companies we reviewed, it has the highest dividend.
The company's first dividend payment of 2022 was $0.52 in February. However the company closed on the Warner Media transaction with Discovery in the second quarter. It laid out a post-acquisition growth strategy that features 5G and fiber. Subsequent dividends declared have been coming in at $0.2775. AT&T has reiterated its intention to be among the best dividend-yielding stocks in the U.S.
Boeing
Boeing suspended its dividend after a federal bailout. The airline manufacturer had been paying a quarterly dividend of $2.05.
Low travel demand during the coronavirus pandemic caused airlines to defer orders. The grounding of Boeing’s 737 Max also hurt the company.
But airline orders are starting again from commercial airlines and military contracts. That may not be enough good news to make Boeing worth investing in immediately, but it makes it worth keeping an eye on.
Coca-Cola
If you want reliability in your investments, Coca-Cola (KO) may be the way to go. It pays a reliable dividend of around 3.18% per year, which is better than the 1.62% yield that the average S&P 500 stock pays.
According to one analysis, the beverage company pays investors most of its net income. But even for investors who aren’t looking for dividends, Coca-Cola is a profitable company that some analysts expect to be valuable to investors while growing in the coming year.
Disney
Disney (DIS) theme parks have reopened after being closed during most of the coronavirus pandemic, its streaming service Disney+ keeps offering hit shows, and movie theaters have reopened to show its movies.
Everything seems back on track for Disney, which had a tough time during the pandemic when it fell more than 40% during the coronavirus market crash on March 18, 2020. It has bounced back strongly, with a 5.02% year-to-date jump to a hit of $93 on November 30, 2023.
For dividend seekers, Disney stopped making dividend payments last year after paying 0.88 per share on Jan. 16, 2020.
IBM
IBM (IBM) is one of those blue-chip stocks that new investors may think of as an old, stodgy company that isn’t doing what many other tech businesses are doing by making money by the fistful as quickly as possible. It can seem like a stock your grandfather owned.
But with its high dividend and low price-to-earnings ratio, IBM can be seen as a bargain blue-chip stock that pays well.
IBM’s price-to-earnings ratio, or P/E, is around 21.06. This ratio measures a current share price relative to its per-share earnings. It’s a way to compare companies against each other or to look at their historical record. A high P/E ratio could mean a stock is overvalued or investors expect high growth rates. A low P/E can be seen as the stock's price being undervalued and, thus, a bargain for investors.
Johnson & Johnson
Johnson & Johnson (JNJ) is the No. 1 diversified medical stock by market cap. It sells medical devices and owns consumer products such as Tylenol, Aveeno, and Listerine.
Johnson & Johnson is the third-biggest company on our list for market cap, behind Microsoft and Amazon. The stock is worth $366.70 billion and would have to do a little more than double its size to become a $1 trillion company. According to The Motley Fool, that’s more common for fast-growing technology companies but is something JNJ could achieve in the next decade.
Related: How to Buy Johnson & Johnson Stock
Merck
Pharmaceutical company Merck (MRK) is another company that made a lot of money from Covid treatments, which contributed $436 million to sales in the third quarter of 2022.
Merck’s cancer drug Keytruda is the company’s top product and one of the best-selling drugs in the world, generating $6.3 billion in revenue in Q3 2023. A report from the research firm GlobalData says Keytruda will become the best-selling drug in the world in the next five years.
Microsoft
Microsoft (MSFT) has spent at least a decade being the uncool kid on the Big Tech block, but it always seems to make money.
Microsoft stock may not be the sexiest and most exciting tech stock. But if you’re looking for a blue-chip company that keeps growing, you may find this boring geek worth your money.
Walmart
Steady and reliable is a good way to describe the retail giant Walmart (WMT). It began trading on the New York Stock Exchange on Aug. 25, 1972. Since 1974, it has paid shareholders a quarterly cash dividend.
Walmart had a much better 2023 than 2022, with the stock rising 8.4% year to date. Its U.S. comp sales grew 4.9% in the most recent quarter, with eCommerce up 24%.
Best blue chip stocks summary
Company | Closing price, Nov 30, 2023 | 52-week range | Dividend yield | Market Cap | P/E ratio |
Amazon | $ 146.09 | $81.43-$149.26 | N/A | $1.51 trillion | 75.69 |
American Express | $ 170.77 | $140.91 - 182.15 | 1.41% | $124.45 billion | 16.02 |
Apple | $ 189.95 | $124.17 - 198.23 | 0.51% | $2.95 trillion | 31.04 |
AT&T | $ 16.57 | $13.43 - 21.53 | 6.70% | $118.48 billion | N/A |
Boeing | $ 231.63 | $172.85- 243.10 | N/A | $140.13 billion | N/A |
Coca-Cola | $ 58.44 | $51.55 - 64.99 | 3.15% | $252.66 billion | 23.47 |
Disney | $ 92.69 | $78.73 - 118.18 | N/A | $169.65 billion | 72.41 |
IBM | $ 158.56 | $120.55- 158.60 | 4.19% | $144.78 billion | 21.06 |
Johnson & Johnson | $ 154.66 | $144.95 - 181.04 | 3.08% | $371.31 billion | 11.48 |
Merck | $ 102.48 | $99.14 - 119.65 | $ 3.01 | $259.69 billion | 56.93 |
Microsoft | $ 378.91 | $219.35 - 384.30 | 0.79% | $2.81 trillion | 36.68 |
Walmart | $ 155.69 | $136.09- 169.94 | 1.46% | $419.05 billion | 25.82 |
FAQs
Why should I buy blue-chip stocks?
Investors with a low tolerance for risk like blue-chip stocks because they offer more peace of mind than the average stock. Market downturns can still affect them, but they have a history of bouncing back.
Here are some other characteristics of blue-chip companies:
- Large market capitalization. Called market cap, for short, it’s the measure of the size and value of a company. They’re often large-cap stocks with a market valuation of $10 billion or more.
- In a major market index. They’re part of indexes such as the S&P 500, the Dow Jones Industrial Average, or the Nasdaq 100.
- Growth history. These are reliable companies with a history of strong performance, growth, and good future prospects.
- Dividends. Not all of them pay dividends, but many make regular payments to investors.
- Big names. Most blue-chip companies are household names you’ll recognize.
Why would I not want to own blue-chip stocks?
Blue-chip stocks sometimes fall out of favor with investors. Companies sometimes cut dividends, aren’t as vital to the economy as once, or aren’t growing anymore.
To know if a blue-chip company still has that shine, check to see if it’s still part of the Dow Jones Industrial Average or DJIA. Thirty U.S. companies are listed in the DJIA, and if they don’t meet the criteria — such as sustained growth — they could be replaced by another company.
General Electric was an original member of the Dow, but it was removed after no longer being a growing sector of the U.S. economy.
Investors should look at their portfolios as the economy shifts and rebalance them at least once a year. This is true with any portfolio but may be needed more often if you own too many blue-chip stocks.
Another potential downside is that blue-chip companies can lag the market index when the market is rising and see stiff competition from lean startups that can move quickly when conditions change.
Should I buy ETFs instead?
Exchange-traded funds, or ETFs, are a way to buy a range of stocks instead of relying on one stock you like to succeed. ETFs that focus on blue-chip stocks can help spread your risk among many blue-chip companies and give you diversification.
Ask your broker or search for blue-chip ETFs or DJIA on the stock trading platform you use to find them.
Related: Best ETFs
Why you should buy blue-chip stocks
Big-name companies that sometimes pay dividends have a growth history and relatively low risk, and they can be smart additions to portfolios. They can help low-risk investors own companies that hugely impact the U.S. economy and share in any gain through dividends and higher stock prices.
Some blue-chip stocks can be relative bargains if they have a price-to-earnings ratio below the market average.
At the very least, they can be a good way to diversify your portfolio without taking a huge risk.
The bottom line
If a company you’ve bought from has been around for decades and has a huge market share, it may be a blue-chip stock. You may make regular purchases from huge companies worth investing in without knowing it.
Like any other stock, blue-chip stocks don’t come without downsides. They fall with the stock market just like any other company.
But their staying power over the years can be enough to get you interested in researching if they’re a blue-chip stock worth owning.
If you want more information regarding stocks of interest, check out Motley Fool's Stock Advisor service.
Related: Motley Fool Review
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Writer
Aaron Crowe is a freelance journalist who specializes in personal finance writing and editing. He has worked at newspapers, where he won a Pulitzer Prize, and has written for numerous online publications. These include AOL, US News & World Report, WiseBread, Bankrate, AARP, and many websites focusing on housing, credit and insurance. He lives in California with his wife and daughter.
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