Blue chip stocks are some of the best stocks on the market today. They offer a high rate of return with low risk relative to other stocks. However, do blue chip stocks pay dividends, and how often are they paid out?
Blue chip stocks pay dividends at a consistent rate, usually annually or quarterly, and often the dividend will increase each time it’s paid out thanks to an increase in company growth. Nevertheless, some blue chip companies don’t pay dividends; instead, they reinvest their gains for more company growth.
This article will explain what blue chip stocks are, how they pay dividends, and provide an example of how blue chip stock dividends work. I have also included a few resources at the end of this article that will give you more information about blue chip stocks and an overall perspective on building a blue chip stock portfolio.
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What Are Blue Chip Stocks?
Blue chip stocks are some of the highest-rated stocks traded in the United States. They get their name from the blue poker chip, which has the highest value in the game.
The companies are usually well-known by nearly everyone, and they all have a big role in the US corporate economy. Not only are blue chip companies well-known, but their stocks are some of the most traded on the stock market. This means that they are high in value, and they tend to be stable over time, with the exception of any large company announcements or economic events that affect the price.
One benefit of blue chip stocks is that they’re proven to be successful, and they tend to be a low-risk, high reward investment. These stocks should continue to increase in value the longer you hold them.
Another huge benefit of blue chip stocks is that many of them pay dividends. Most of them pay their dividends quarterly, while some pay annually. In any case, receiving dividends on these stocks is a great way for investors to earn some passive income on their investment.
According to NerdWallet, there are four common factors that blue chip companies usually share:
- Large market capitalization: Blue chip stocks tend to be large-cap stocks, which means they have a valuation of ten billion dollars or higher.
- Consistent growth: Blue chip companies have consistently grown over time and show signs that they’ll likely continue to grow in the future.
- Dividends: Almost all blue chip stocks pay dividends to their shareholders. They’re usually paid annually or quarterly.
- Market Indexes: Many blue chip stocks are part of a highly rated stock index used to track a group of stocks. One of the best indexes entirely made up of blue chip stocks is the Dow Jones Industrial Average, which we will discuss in the next section.
To understand blue chip stocks even better, check out this YouTube video from Learn to Invest:
Dow Jones vs. Blue Chip Stocks
All thirty stocks on the Dow Jones Industrial Average are considered blue chip stocks, and many pay dividends.
The Dow Jones is one of the highest-rated and oldest indexes in the US stock market. Its stocks are some of the most highly rated stocks traded today, and the index gives a good indication of how the stock market is doing.
However, there are other stocks not on the Dow Jones that are also considered blue chip stocks. They’re still considered blue chip because they have proven themselves over time to be a reliable, low-risk investment that provides consistently high returns.
These are some of the blue chip stocks that are part of the Dow Jones:
- Apple (AAPL)
- Boeing (BA)
- Coca-Cola (KO)
- McDonald’s (MCD)
- Microsoft (MSFT)
- Nike (NKE)
Here are some other blue chip companies that aren’t part of the Dow Jones Industrial Average:
- Alphabet/Google (GOOGL)
- Amazon (AMZN)
- Starbucks (SBUX)
To learn more about the Dow Jones, how it works, and why it’s an important factor in measuring the stock market’s growth, watch this YouTube video from TD Ameritrade:
Blue Chip Stock Dividends
Dividends are a great way to earn passive income on stocks you hold, especially if you’re holding them for the long term.
Just as with any stocks, not all blue chip stocks pay dividends, and not all blue chip stocks pay dividends consistently. But most of them do pay them at a consistent rate, such as annually or every quarter, as do most stocks.
Another advantage of dividends paid on blue chip stocks is that they tend to increase over time. So, the longer you hold the stock, the higher dividends you’ll receive each time they’re paid out.
However, there are other ways to invest in blue chip stocks in which the dividend payout will vary.
First, you can invest in an ETF focused on blue chip stocks, usually those of which are part of the Dow Jones. ETFs typically pay dividends just like stocks, and the payouts are sometimes based on the stocks within the fund. But this isn’t always true, and you may receive fewer dividends or get paid out less consistently with an ETF.
Furthermore, you can buy options or futures for blue chip stocks. However, neither of these investments pay dividends, even if the stock companies themselves are paying them. You would have to own the actual stock itself to receive any dividends paid.
Company Dividends
As for the blue chip stocks that don’t pay dividends, they tend to be younger companies who want to use their profits to reinvest and have even higher growth going forward instead of rewarding their investors. While they may pay dividends eventually, they expect the reinvestment to grow and increase the stock price.
Some companies that don’t pay dividends include Amazon, Facebook, and Google. These are relatively new companies that expect increasing growth in the coming years, amplified by reinvesting their profits. Contrarily, older companies like Coca-Cola and McDonald’s pay dividends to their shareholders, and both pay on an annual basis.
Just because these newer companies don’t pay dividends now doesn’t mean that they’ll never pay dividends. It also doesn’t mean that other blue chip stocks will continue paying out dividends indefinitely. The companies can change their dividend payout methods at any time, including the frequency at which they pay them out.
Learn More About Blue Chip Stocks
If you want to start trading blue chip stocks and possibly reap the benefits of their dividends, you should learn more about them to make smart investments. Here are some resources from Amazon.com that you can use to learn more about investing in blue chip stocks:
- Kelly Wright Dividends Still Don’t Lie. This book explains how blue chip stocks pay dividends and why they’re one of the best investments that you can make. You’ll also learn how to choose which stocks are best for you and how to make the most of your investments.
- Joshua King Blue Chip Stocks. Another great book, this one will teach you how to make blue chip stocks a successful, passive investment. You’ll learn how to manage your blue chip stocks and earn your dividends with little effort.
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Conclusion
Blue chip stocks tend to pay their dividends consistently, and the dividends usually increase over time. Most blue chip companies that pay dividends will pay them quarterly or annually, but companies can pay them as often as they like.
Some blue chip companies, usually newer ones, don’t pay dividends because they use their profits to reinvest in themselves to see even higher growth in the future.
BEFORE YOU GO: Don’t forget to check out my latest article – ‘Exploring Social Trading: Community, Profit, and Collaboration’. I surveyed 1500+ traders to identify the impact social trading can have on your trading performance, and shared all my findings in this article. No matter where you are in your trading journey today, I am confident that you will find this article helpful!
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