While many investors love to speculate on small companies with big growth potential, the best investors focus on adding high-quality, blue-chip stocks to their portfolio. Indeed, investing in a diversified basket of boring blue-chip companies is a much safer way to grow your wealth over time. That’s because a blue-chip stock tends to be the largest, most stable, and profitable company in its respective category – delivering strong returns year in and year out.
Best Blue-Chip Stocks To Buy This Year
Warren Buffett, the greatest investor of all time, has said he only invests in businesses that he knows and understands, and those that have a strong moat or competitive advantage. This “buy what you know” approach aligns with a blue-chip stock-picking strategy. Blue-chip stocks are all well-known companies that offer products and services that we all use on the regular.
Here are 10 blue-chip stocks to buy this year:
Apple (NASDAQ: AAPL)
Apple is on an incredible 15-year run. It went from a middling technology company, whose stock price hovered around $2 per share, to the most valuable company in the world with a market cap of $2 trillion. Its growth is led by the iPhone, which accounts for 44% of the company’s overall revenue. Apple generates so much free cash flow that it started paying a dividend in 2012 and still sits on $200 billion in cash.
Microsoft (NASDAQ: MSFT)
Microsoft has a longer track record than Apple and made its founder, Bill Gates, one of the richest people in the world. While known for its Windows operating system Microsoft’s largest area of growth comes from its cloud computing capabilities. Microsoft has paid an ever-increasing dividend since 2006.
Amazon (NASDAQ: AMZN)
Amazon is the world’s most valuable retailer (and third most valuable company by market cap), surpassing Walmart in 2015. The bulk of its revenue comes from Amazon’s online product sales, but the retail giant also makes big money from Amazon Web Services and from its subscription services. Amazon has never paid a dividend, preferring to invest any profits back into its business.
Berkshire Hathaway Inc. (NYSE: BRK.B)
Berkshire is the conglomerate holding company founded by Warren Buffett. Its wholly-owned businesses include GEICO, Duracell, Dairy Queen, and BNSF. While it also owns a significant stake in American Express, Coca-Cola, and Bank of America. Berkshire has never paid a dividend, but it has grown its book value by an average of 19% per year since 1965 (compared to 9.7% per year from the S&P 500).
Visa (NYSE: V)
Visa is the world’s second-largest card payment organization and facilitates electronic fund transfers throughout the world through its branded credit cards, debit cards, and prepaid cards. Visa controls 50% of the global card payment market outside of China. The company has paid a dividend since 2013 and has a market cap of $450 billion.
Johnson & Johnson (NYSE: JNJ)
When it comes to buying what you know and use every day, Johnson & Johnson might be at the top of the list. This blue-chip company produces well-known household brands such as Band-Aid, Tylenol, Johnson’s Baby products, Neutrogena, and Clean & Clear skincare. The company has increased its dividend for an incredible 58 consecutive years and has a market cap of $380 billion.
Proctor & Gamble (NYSE: PG)
Proctor & Gamble is another iconic multinational company, selling a wide range of household products that include Tide, Bounty, Gillette, Pampers, and Crest. Proctor & Gamble also has a sparkling dividend growth track record, raising its dividend for 58 consecutive years and has a market cap of $343 billion.
Royal Bank of Canada (TSE: RY)
The Royal Bank of Canada (RBC) is Canada’s largest company with a $153 billion market cap. It’s Canada’s largest bank, and also has operations in 36 other countries, including the U.S. RBC has paid dividends to shareholders every year since 1870, and currently has a nine-year dividend growth streak. It’s Canada’s bluest blue-chip stock.
Brookfield Asset Management Inc. (TSE: BAM.A)
Brookfield Asset Management is a Canadian conglomerate that focuses on real estate, renewable power, infrastructure, and private equity. It is headquartered in Toronto, but also has operations in New York, London, Sydney and Rio de Janeiro. Brookfield has a market cap of $81 billion and has paid a dividend since 1997.
Canadian National Railway (TSE: CNR)
Canada’s largest railway in both revenue and the size of its rail network, CN Rail has been in operation since 1919 and currently has a market cap of $100 billion. The company serves Canada, and the midwestern and southern United States. CN Rail has increased its dividend for 24 consecutive years.
How to Invest in Blue-Chip Stocks
The easiest way to build a portfolio of blue-chip stocks is to buy an ETF that tracks large-cap stocks. But many cost-conscious investors want to build their own portfolio of blue-chip stocks and hold the individual stocks directly.
I’d suggest looking at the holdings of a Canadian index ETF like Vanguard’s VCN, and the holdings of an S&P 500 tracking ETF like SPY and then ‘skimming’ the top 10 or so companies from each. This will give you the top companies in each index by market cap, which is a great starting point for investing in your own portfolio of blue-chip stocks.
Once you’ve opened your discount brokerage account and opened the appropriate account type, it’s time to build your portfolio. I’d recommend diversifying as broadly as you can and make it a goal to hold at least 20-25 blue-chip stocks in your portfolio.
Mind your costs if using a trading platform that charges a commission for every stock purchase. Costs can really add up if you purchase less than $1,000 worth of shares.
A good blue-chip stock portfolio will include all of the major investment sectors such as financials, energy, communication, industrials, consumer staples, consumer discretionary, health care, and real estate.
Don’t limit yourself to Canadian stocks. The Canadian market is poorly diversified with many blue-chip stocks in the financial and energy sectors. Be sure to invest in U.S. stocks as well, since their market is much more diverse, and its businesses typically have multi-national operations that expand the globe.
Related: How to buy stocks in Canada
When I first started investing, I built a portfolio of 25 Canadian blue-chip stocks that all paid strong dividends. I held onto this portfolio for five years and it outperformed my benchmark index in four of those years.
I eventually abandoned my stock picking strategy in favour of investing in low-cost index ETFs. But there’s no denying the appeal of investing in blue-chip stocks and building your own portfolio to nurture and love.
If you have the time, skill, and temperament to pick your own individual stocks, stick with the bluest of the blue-chip companies, diversify broadly across different sectors and countries, and hold on during the ups and downs of the market, then there’s a good chance you can keep pace with and maybe even outperform the market over time.