Blue-chip stock

The term comes from poker, where blue chips traditionally carry the highest value. A blue-chip company is usually a household name and a leader in its industry, with a large market capitalisation, a long operating history, a strong balance sheet and a record of steady profits, often including a history of paying and gradually raising dividends. There is no official list. In practice the label is often applied to members of a country's main large-company index, and some indices, such as the Dow Jones Industrial Average in the US, are commonly described as blue-chip indices.

Blue-chip shares are generally seen as less risky than those of smaller or younger companies, and they tend to be more liquid and less volatile. But the label describes reputation and past performance, not a guarantee. Established companies can decline gradually as industries change, or suddenly in a crisis: several banks regarded as blue chips before the 2008 financial crisis lost most of their value. Size can also limit growth, so blue chips may lag in strong markets. Owning a handful of famous names is not the same as being diversified.