Definition: The Blue Chip Stock refers to the high valued shares of the well-established companies which are financially very sound and capable of successfully weathering any economic condition. Simply, the stock of nationally reputed companies which are known for their abilities to generate revenues in good or bad times and giving the dividends every time to its shareholders is called as the blue chip stock.
The name blue chip stock has been derived from the game “Poker” where the blue chips are considered as the highest valued chips. The blue chip company is ideally the leader or is among the top three companies in its sector, which is known for providing the consistent or increased dividends for years.
The blue chip stock has the market capitalization of the billions and is considered as the important component of the most reputed market indexes or averages. The most popular index is the Dow Jones Industrial average that shows the price-weighted average of 30 blue chip stocks that are typically the leaders in their respective industries.
The blue chip companies are believed to survive even in the worst economic conditions and generate revenues. But however, in the extreme negative downturns, even the big players tasted the flavors of bankruptcy. For example, Lehman Brothers, General Motors and other European Banks had gone bankrupt at the time of global recession in 2008.