Introduction
If we discuss the financial markets, we’ll certainly encounter some terms that we have heard but don’t know the meaning of and some that we are not aware of. The particular market a trader invests has wide options and could bring new changes with time and technology. Therefore, a trader has to be active to have a profitable trade.
Here, we are going to talk about the stock market and what it has to offer. The stock market has been a highly active and traded market for years. The investors of the market have many times come across the terminology, blue chip stocks. But, what does that mean?
In the article, we’ll understand blue chip stocks in the UK that are best to invest in and how traders can invest in these to have good market returns. So, let’s quickly drive in and understand the stock market trade better.
Stock Market
A market that has been the source of investment in the financial sector for years, being the oldest and traditional form of trade. Stocks are the shares of a company that are issued in the market for trade. Investors buy and sell the shares to make money from the market worth of the stocks.
The companies issue shares for expansion, profits, and production benefits. They issue the stocks in the form of shares that are purchased in units or fractions by the investors. The stocks, when issued in the market, are called the Initial Public Offering (IPO) and could be traded by exchanges.
The stock market has the shares listed with exchanges and is traded there, with the market opening from 8 am to closing at 4:30 pm.
The shares of companies are of two types basically, equity shares and preference shares. Both are different from one another but give the same result if traded adequately. Investors trade the shares as they have several benefits such as dividends, liquidity preference, voting rights in company meetings, etc.
Blue Chip Stocks
Stocks are an important part of the financial markets, and with the above paragraph, we have understood what the stock market and its trade are. So, next, we’ll be getting to know the blue chip stocks. What are these, and how can we invest in these for a profitable investment.
Blue chip stocks are the shares of a significantly large and established company. These shares of the company hold good worth with high market trade. The stocks are listed with major stock exchanges such as the London stock exchange or the National Association of Securities Dealers (NASDAQ). However, the criteria may change as there’s no set definition for blue chip stocks.
For example, the FTSE 100 or the S&P 500 are the indices where the companies publicly list their stocks. These could be termed as the blue chip stocks as the shares listed with these are of the largest companies in the market. The FTSE 100 considers the 100 largest companies, whereas the S&P 500 has the 500 largest companies. Similarly, there are other indices as well for trading with blue chip stocks.
The stocks are based on their market capitalisation and could be traded easily by the investors. Suppose a company’s stocks have high value in the market and have 500 positions in the S&P 500. In some time, say a month, the share value drops for the firm, and it is out of the S&P 500 list. Therefore, the blue chip stocks do not have a set definition. The stock of the company may be out of the list anytime.
Key Points of Blue Chip Stocks
The UK based blue chip stocks could be set under certain points, which are listed here, for a quick understanding.
- Blue chip stocks are of the big companies with a high market valuation
- In the UK, most of the blue chip stocks are listed with the FTSE 100 indices
- The blue chip stocks are great options to invest for high profits
- Investors of blue chip stocks enjoy great dividends paying records
- Blue chip stocks survive recessions and other crisis
- Most investors prefer blue chip stocks
Why do traders invest in Blue chip stocks?
There are a number of reasons why traders should invest their capital in blue chip stocks. Of course, we have understood by now that they have the shares of the largest companies, but that’s not all. Therefore, below are the reasons to trade blue chip stocks:
Dividends
Dividends are the revenue that company’s earnings from the stocks in the market and that they share with the shareholders. Most of the blue chip stocks have a dividend facility. Thus, traders who have blue chip stocks with dividends have two sources of earning one from the market profits and capital gains on stocks.
Balance Sheet
The balance sheet is the short version of the market position of a company. Therefore, having a solid balance sheet is so important. The blue chip companies have a strong balance sheet that shows their market capitalisation and position. A trader is able to know the assets and liabilities of the company and if it has a strong or weak market capitalisation.
Blue chip stock company will have the following:
- Minimal debt
- Good cash flow
- Good income generating assets
- Less liabilities
Business Models
An essential part of blue chip stocks is that companies with such shares have a strong business model for a period of time. Therefore, it is necessary that the business models are checked; a company with high capitalisation may not have a good business growth model. Therefore, blue chip stocks do not have a set of definitions.
How to Invest in Blue Chip Stocks?
It is quite simple to invest in the stocks of such companies; below mentioned are the quick and easy steps for stock investment. The traders of the UK can have an overview of the following points for blue chip stock investment and earn good returns. So, let’s begin:
- The first step to invest in blue chip stocks is selecting an online broker who offers services of stock trading with the instrument trader is interested in. For selecting the broker, traders should keep in mind that the broker is regulated, trusted, provides blue chip stocks, zero trade commission, and best trading services. Examples of good brokers are ABInvesting and Investby.
- After selection, the trader opens an account with the broker and deposits funds to start trading. For creating an account, the trader requires to register with form filling and information with documents uploading for verification.
- The next step is to find the blue chip stock that the trader is interested in trading. Traders, however, should do a proper study and research about the companies and then invest their funds.
- With the help of trading platforms, traders can directly order with the broker; they can select the number of share units to be purchased, enter it, and begin the trade.
- At last, the trader confirms the trade with selection and then opens the trade to buy the blue chip stocks with zero trading commission.
- Traders can monitor their trade and find various market opportunities with the help of trading platforms.
Best Blue Chip Stocks UK
Blue chip stocks are of relevance for many traders as most of the investors prefer such shares that make them earn profits and maximise their trade. The best blue chip stock companies in the UK are mentioned below for traders’ knowledge. These are the wealthiest and largest trading companies. However, such companies also face volatility and are prone to high market fluctuations.
The list contains some of the best blue chip companies of the UK 2021:
Legal & General (LGEN)
Legal & General Group plc is a UK based financial company that offers its services in multinational financial services and assets management. A British company headquartered in London, England. The company is the provider of insurance, pensions, mortgages, retirement plans, etc., to its clients.
The company has been well established since 1836 with a good market reputation in the stock market. Moreover, the company has a dividend plan for its future trading, which will be held flat for a year and increased annually. It will use the lower single percentage for a dividend increase.
Stocks of the company are good investments for the blue chip investors of the UK.
Unilever (ULVR)
Unilever PLC, a British multinational consumer products company based in the United Kingdom, has products that are highly used by the general public. The company is headquartered in London and was founded by the Lever Brothers in 1929. It generally deals in products such as food, ice cream, wellbeing vitamins, tea, and coffee, cleaning agents and beauty products, etc.
With over 400 brands and high turnover, the company has an excellent market position. It offers blue chip stocks with increased dividends in the last few years. Since the pandemic, the company products are going well and have chances of market value increased in the future.
Rio Tinto (RIO)
The leading mining group of the UK, Rio Tinto, has been exceptionally growing well in its trade. The company is an Anglo-Australian multinational firm having the second largest metals and mining corporation. It is headquartered in London and is headed by its CEO Jakob Stausholm.
Rio Tinto was established in 1873 by Hugh Matheson and now has itself set in around 35 countries. The products produced by the company are iron, aluminum, copper, diamonds, titanium, and borates. The company has performed extremely well since its inception and has a good market reputation. RIO is a dual listed company and has stocks on the London stock exchange and the Australian Securities Exchange.
Berkeley Group Holdings ( BKG)
BKG is a British company that operates in property development and house building. It is based in Cobham, England, and is listed with the London stock exchange with the FTSE 100 Index. It was founded in 17976 and, as of now, has revenue in millions. Moreover, the company has five subsidiaries and is growing enormously.
The focus of the company is on urban development and high end neighborhood projects. However, the performance of the firm is dependent on the economic condition of the UK and the housing market. Traders can invest in the stocks of the company as they have had reliable market positions for years.
Reckitt Benckiser (RB)
A consumer goods company set in Slough, England, has been a good investment source for the stock market traders. It is a British multinational company trading in consumer goods related to health, hygiene, and nutrition. The firm was incorporated in 1999 with the merger of the Reckitt & Colman plc and the Dutch company Benckiser N.V.
The brands of the company include Dettol, Disprin, Strepsils, Veet, Airborne, Gaviscon and Mead Johnson, etc. All these products of the company are famous and have high market demand. Thus, the stocks of the company have a good valuation, and traders can invest in their blue chip stocks.
HSBC
An enormous bank in the world, HSBC is headquartered in London, with its operation in 65 countries. The company tends to offer its clients steady dividends in the future and has a great market position. Most of its revenue is generated from Asian countries and has the shares price rising recently.
Traders can invest in the blue chip stocks of the company and can enjoy good stock trade. An investment bank which is the second largest in Europe, with its assets worth trillions. The bank was founded by Sir Thomas Sutherland in Hong Kong and serves worldwide for better bank investments.
Royal Dutch Shell (RDSA)
The company has been the blue chip stock company of the UK for several years and is the most trusted stock investment firm. Traders can invest in the firm to generate good returns. The company works in the production of natural gas and oil and is working on becoming the global supplier and producer of clean energy.
Traders can invest in the stocks of the Royal Dutch Shell for a profitable trade.
The firm was established in 1907 and is headquartered in Haagse Hout, The Hague, the Netherlands, with Shell centre in London, England.
Conclusion
Trading in the stocks of the reputed companies gives assurity to the trader with some profits in the near future. Traders invest in these for the long term or short term as per their wish. The blue chip stocks have a good market future with the market capitalisation of the companies increasing.
However, traders should invest after complete research and market understanding.
