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What Is a Blue Chip?

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What Is a Blue Chip?

A blue chip is a phrase used to refer to a stock of extraordinarily high quality, including long records of dividend increases, strong balance sheets, and huge competitive advantages that make it almost untouchable in its industry.

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Question: What is a "blue chip" and what does it have to do with my investments?

Answer: A "blue chip" is the nickname for a stock that is thought to be safe, in excellent financial condition, and firmly entrenched as a leader in its field. Blue chip stocks generally pay very large and growing dividends, making them favorably regarded by investors. A few examples of blue chips are Wal-Mart, Coca-Cola, Procter & Gamble, Exxon Mobil, PepsiCo, McCormick & Company, Unilever, and Johnson & Johnson.

Blue chip stocks are sometimes referred to as bellwether issues, though that is a phrase that has died off in the past ten or fifteen years as the older generation of investors has gone to the grave, to be found only in the pages of old news stories and academic books.

For more information, read an in-depth discussion of this topic in an article called What Are Blue Chip Stocks?, then follow it with The Benefits of Owning Blue Chip Stocks and Where Did the Term Blue Chip Originate?.

If you want to branch out from there, you may also want to read 101 Things Every Investor Should Know About Stocks: A 3 Minute Guide to Understanding the Stock Market as it covers a lot of these basic types of definitions.

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