A blue-chip stock is an industry leading company with a long history of growth, favorable returns to investors, and a dependable business model. Think of blue-chips as the G.O.A.T.s of investing: these companies have so established themselves in the minds of consumers, it’s impossible to imagine a world without them.
For conservative investors, or those who are just starting out, blue-chip stocks could give you ample security, while also promising handsome long-term returns. But what exactly are blue chip stocks, and how can you find blue chips in Canada? Below, we’ll break it down.
What are blue chip stocks?
Blue chips (traditionally the highest valued casino chip) are arguably the most stable, well-known, and reliable companies in their respective industries. Think Disney, think Shopify, think Royal Bank of Canada. When a company has reached blue-chip status, it has most likely stood the test of time, standing above rivals and cementing its position as an industry leader.
Though there are no quantifiable metrics that separate blue-chips from others, most experts agree that blue-chip companies exhibit a few outstanding characteristics, such as:
- An industry leader with a solid business model that secures its future
- A large market capitalization that continues to grow over time
- A history of delivering favorable returns to investors
- A large, well-established brand whose products and services many consumers can’t live without
- A history of paying dividends, as well as increasing those dividends regularly
Why are blue chip stocks considered safe investments?
As with any stock, blue chips come with various degrees of risk, though typically less risk than stocks of other classifications. When a company reaches blue-chip status, they’ve reached a point where their reputation precedes them, where their products and services have become indispensable, and where the value of their stock is able to weather bouts of market volatility. All of these make blue-chips considerably more safe than, say, growth or penny stocks.
In addition to stability, many blue-chip stocks are easy for beginning investors to understand. Because most people are familiar with blue-chip products and services, you’re less likely to invest in something that’s beyond your comprehension.
What are some of the best blue chip stocks in Canada?
Fortunately, Canada has some of the best blue-chip stocks out there, with many emerging from the 2020 – 2021 pandemic poised for growth. If you’re considering adding blue chips to your investment portfolio, here are some industry leaders you might want to consider.
1. Shopify (TSX:SHOP)
One of the youngest companies on this list, Shopify has nonetheless established a firm place in the league of blue-chip companies. Not only does it have the largest market capitalization in Canada at around $225 billion (beating all the banks and energy companies, which have long formed the bedrock of Canada’s economy), it has emerged as a global leader in the e-commerce space.
Shopify has capitalized on an important business need — the need to build glamorous online stores with little or no programming knowledge. During the pandemic, Shopify helped retaile
rs and small businesses alike replace foot traffic with online sales, helping Shopify’s shares jump from around $600 a share in April 2020 to $1,800 a share in February 2021, hitting a high of $2,075 in July 2021.
If you think the Shopify boat left the harbor long ago, you’re wrong. This is a blue-chip stock worth adding to your portfolio, no matter what kind of investor you are.
2. Royal Bank of Canada (TSX:RY)
No discussion of blue-chip companies can be complete without mention of Canada’s largest bank, Royal Bank of Canada. With a market capitalization of $185 billion (per 2021 numbers), the Royal Bank has been a big name in Canada since it opened in 1864 (for perspective: the most stunning invention in 1864 was the
What makes the Royal Bank of Canada a solid blue-chip company is its resilience. In 2008, when most of the world’s banks were caving under an economic recession, the Royal Bank stayed steady, coming out stronger and without having to cut dividend payouts. The same can be said about the most recent pandemic-induced downturn, which saw a drop in Royal Bank share prices but not in dividends.
At its current share price, Royal Bank’s dividend payout is 3.3%, a number that’s expected to grow once the government eases restrictions on dividend increases. It’s never too late to invest in Royal Bank, since, well — it’s most likely here to stay.
3. Canadian National Railway (TSX:CNR)
With over 33,000 kilometers of laid tracks, and over a century of operating history, it’s no surprise Canadian National Railway makes the list of blue-chip stocks. This is a company that has increased its dividends for 25 years and has grown its share price by almost 400% within the last 10 years. That’s a lot for a company whose revenue comes from transporting materials.
4. Canadian Tire (TSX:CTC.A)
Almost as ubiquitous as poutine, maple syrup, and moose is the behemoth Canadian retail chain, Canadian Tire. Indeed, most, if not all, Canadians have shopped at this nearly one hundred year old retail store at least once in their lives. With its ability to survive market downturn after market downturn, not to mention a pandemic that crushed its foot traffic, it’s no wonder Canadian Tire is a top-of-the-list blue-chip stock for Canadian investors.
During the pandemic, Canadian Tire saw a major drop in sales. But the mandated lockdowns and decreased foot traffic forced Canadian Tire to grow in one important way — ecommerce. Indeed, in the last few years, Canadian Tire has also revisited its “catalogue” origins and launched a stunning ecommerce platform that silenced critics and made the brand more resilient in a world turning increasingly to online shopping.
As of 2021, Canadian Tire has a market capitalization of $12 billion, and it pays quarterly dividends that appear poised for future increases. All-in-all it could represent a safe investment for investors looking for a good retail stock.
5. Fortis (TSX:FTS)
Among utilities stocks in Canada, Fortis is a name you can’t ignore. As a leader in the regulated gas and electric utility industry, you can rest assured Fortis will be around for a long time — at least for as long as we depend on electricity and gas.
Fortis’s stability has allowed it to pay out ever-increasing dividends to its investors. In fact, for nearly 50 years, Fortis has raised its dividend every single year, with plans to raise them by 6% every year until 2025. Though Fortis may not be as new and innovative as, say, Shopify, it can play an excellent role in your investment portfolio.
Other blue-chip stocks in Canada include:
- Barrick Gold (TSX:ABX)
- Brookfield Asset Management (TSX:BAM.A)
- Constellation Software (TSX:CSU)
- Enbridge (TSX:CSU)
- Manulife (TSX:MFC)
- Metro (TSX:MRU)
- Suncor Energy (TSX:SU)
- TC Energy (TSX:TRP)
- Thomson Reuters (TSX:TRI)
Should you invest in blue chip stocks?
Just about any investor can benefit from having blue-chip stocks in an investment portfolio. Though you won’t get as much gains from, say, a small-cap company with the potential for explosive growth, you can appreciate the stability that blue-chip stocks can offer. In addition, you can get some hefty dividend returns, many of which you can then reinvest in your blue-chips.
For Canadians who don’t want to choose individual blue-chip stocks, you can look into buying shares of a blue-chip focused exchange-traded fund (ETF). Because an ETF contains shares from numerous companies, you can spread your money across a wide variety of great blue-chips, without having to hand-pick them yourself.