Blue-chip stocks are industry-leading companies that are dependable, profitable, and stable. They usually have large market capitalizations, and they’re often so well-known and respected, it’s hard to imagine a world without them.
For an investor who wants safe or stable stocks, blue-chip stocks could give you security, not to mention reliable dividend payouts. Below, we’ll break down blue-chip stocks and help you decide if you should invest in them.
What are blue-chip stocks?
Blue-chip stocks are types of stocks that are the most stable, well-known, and reliable companies in their respective industries. Think TD, Disney, Apple, and Royal Bank of Canada. When a company has reached blue-chip status, it has 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
- A large market capitalization that continues to grow over time
- A history of delivering favourable returns to investors
- A large, well-established brand whose products and services many consumers recognize
- A history of paying dividends, as well as increasing those dividends regularly
Top Canadian blue-chip stocks
Fortunately, Canada has a great selection of blue-chip stocks, many with outstanding dividend payments. If you’re looking to add some stability to your investment portfolio, here are some blue chips on the Toronto Stock Exchange (TSX) you might want to consider.
|Blue-chip stock||Market Cap||Stock Price||Dividend Yield||Description|
|Royal Bank of Canada (TSX:RY)||$169 billion||$120.21||4.53%||One of the largest banks in Canada and the largest stock on the TSX by market cap|
|Enbridge (TSX:CSU)||$101.7 billion||$49.79||6.85%||Midstream oil company with a massive network of pipelines|
|Canadian National Railway (TSX:CNR)||$101.8 billion||$147.35||1.92%||Large transportation company with 33,000 km of railway tracks|
|BCE (TSX:BCE)||$52.48 billion||$57.46||6.79%||Wireless and internet provider with roughly 10 million customers|
|Fortis (TSX:FTS)||$23.9 billion||$49.39||4.37%||Utility company serving 3.4 million customers|
Headquartered in Calgary, Enbridge is a midstream oil company that operates the longest crude oil transportation pipeline in the world. With around 17,809 miles of active pipeline across North America (the equivalent of flying Toronto to Hong Kong, then Hong Kong to Vancouver), Enbridge delivers more than 3 million barrels of crude oil per day, accounting for over 30% of the oil produced in North America.
Historically, Enbridge has paid a hefty dividend. Over the last 27 years, it has even increased its dividend annually, securing its place among Canada’s Dividend Aristocrats. The current dividend yield is 6.85%, making it one of the highest paying dividend stocks in Canada.
2. Royal Bank of Canada (RBC)
As one of the largest banks in Canada (the largest by market cap), RBC has 1,210 active branches with 17 million clients spread across 29 countries.
Over and over, RBC has proven itself as one of Canada’s most reliable stocks. In 2008, when the Great Recession hurt nearly every financial services institution in North America, RBC refused to cut its dividend payouts to shareholders, even though many other banks did. 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 yield is 4.53%, which isn’t the best dividend in Canada but it’s certainly one of the most dependable.
Canadian National Railway
With over 33,000 km of laid tracks, and over a century of operating history, Canadian National Railway is the largest railway in Canada.
Its tracks connect the Pacific in the west to the Atlantic in the east, as well as both oceans to the Gulf of Mexico in southern United States. As such, Canadian National Railway continues to dominant the Canadian transportation industry, delivering around 6 million carloads and generating $14 billion in total revenue annually.
This transportation stock has increased its dividends for 25 years straight 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.
BCE is a wireless and internet service provider with 10 million clients in Canada, making up 30% of the national market. The company’s 5G network, Bell 5G, has been ranked Canada’s best 5G network, and the company predicts it will have the capacity to offer 5G to over 70% of Canada’s population.
Named after the telephone’s inventor Alexander Graham Bell, the company was founded 142 years ago, and it has dominated the Canadian communication sector ever since. For 14 consecutive years, BCE has raised its dividend by 5% or more, and it has a yield of 6.79% at its current share price.
Headquartered in St. John, Fortis is a leading utility holding company that provides electricity and gas for around 3.4 million customers. With 16,000 miles of operating transmission lines, Fortis serves both Canada and seven U.S. states, and it also provides some electricity generation in the Caribbean.
Fortis has raised its dividend for 48 years straight, and it continues to honour a pledge to raise it by 6% every year through at least 2025. Though Fortis may not be new or innovative, it can play a stable role in your portfolio.
Other top blue-chip stocks in Canada include:
- Algonquin Power (TSX: AQN)
- Barrick Gold (TSX:ABX)
- Brookfield Asset Management (TSX:BAM.A)
- Constellation Software (TSX:CSU)
- Franco-Nevada (TSX: FNV)
- Granite REIT (TSX: GRT.UN)
- Manulife (TSX:MFC)
- Metro (TSX:MRU)
- Suncor Energy (TSX:SU)
- TC Energy (TSX:TRP)
- Thomson Reuters (TSX:TRI)
- Toronto Dominion Bank (TSX: TD)
RELATED: Top Canadian Utility Stocks
How to invest in blue-chip stocks
Perhaps the best way to invest in blue-chip stocks is to choose companies that will help you accomplish your investing goals.
For instance, if you want stability, then you might want to invest in companies with the largest market caps, as higher market caps often reduce dramatic price movements. On the other hand, if you want passive income, you might want blue chips with high dividend payouts and a history of increasing them (ideally with no reductions).
You should also look deeply at each company’s finances and stock performance history. Just because a company is a blue chip doesn’t make it immune to market downturn and sell-offs, though the stronger its market cap and balance sheet, the less likely it will turn into an investment loss for you.
Are blue-chip stocks safe?
“Safe” is a fairly relative term that can mean different things to different investors. If by “safe” you mean that the stock is unlikely to result in an investment loss over long periods of time, then, yes, blue chips are safer than other stocks.
But blue chips aren’t immune to stock market downturns. Even companies with large market caps can experience price volatility, especially if there’s turmoil in the overall economy.
Not only that, but blue-chip companies could become victims of irrelevance: consumer demand may be high for a blue-chip company’s products today, but the stock market could change tomorrow. Just look at Sears, RadioShack, General Electric, and Bethlehem Steel for examples of blue-chip companies that failed to reinvent themselves.
That said, many blue-chip companies have the financial strength to stay afloat, even in the roughest of time. 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 safer than, say, growth or penny stocks.
Does every blue-chip stock pay a dividend?
No, not every blue-chip stock pays a dividend. That said, you’ll find that most blue-chip stocks in Canada offer dividends to shareholders (every stock mentioned above does). If we include younger companies, such as Shopify, as blue-chips, however, then we can say for some companies it makes more sense to reinvest money back into their own expansion, as they have plenty of growth left ahead of them.
Should you invest in blue-chip stocks in Canada?
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.