Blue Chip

The term "blue chip" is borrowed from the vernacular of the poker table. Normally blue chips are assigned the highest value in a card game and thus blue chips stocks are those issued by well-known companies with stable earnings, and a lack of major liabilities.

These are stocks that pay regular dividends in both good times and bad and are attractive investment vehicles for those who seek a high degree of safety and have a low tolerance for volatility. The three most attractive features of blue chip stocks are the reliability of the returns they offer, their low yield, and their low risk. (The term has also come to be applied to stocks issued by companies with large capitalization, in excess of $1 billion.)

Examples of active blue chip stocks would be The Coca-Cola Company, IBM, and Royal Dutch Shell. One reason the collapse of Enron in 2001 was such a shock in the financial world is that the company was considered blue chip stock.

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