In the financial market, it is common for investors to have different strategies. Some might prefer to buy stocks in up-and-coming companies that have the potential to outperform the wider market.
Whereas for others, companies that are known for their steady growth might be more appealing - as they can bring more stability to your portfolio.
For those who find themselves belonging to the second category, blue chip stocks can be of high interest.
Put simply, blue chip stocks are companies that boast a solid reputation - and tend to carry relatively less risk compared to other equities. Furthermore, they often tend to pay income to shareholders through dividends.
In this guide, we look at the fundamentals of what blue chip stocks are and how to evaluate them to find out whether they are a good addition to your portfolio. We will also review the best blue chip stocks UK for your consideration.
Five Steps to Invest in Blue Chip Stocks UK at 0% Commission
Here is a quick overview of how you can start investing in the best blue chip stocks UK in five simple steps.
- Choose an online stock broker that enables you to buy blue chip stocks without paying any commission
- Fund your brokerage account
- Find the blue chip stock you want to invest in.
- Enter the number of shares you want to buy.
- Confirm your selection before pressing 'Open Trade' to complete your blue chip stock purchase at zero commission.
If you need a detailed description of how to get started with a brokerage account, you can find this information in the later sections of our guide.
Best Blue Chip Stocks UK to Invest in 2021
- Legal & General (LGEN)
- Royal Dutch Shell (RDSA)
- Unilever (ULVR)
- Rio Tinto (RIO)
- Total (TOT)
- Berkeley Group (BKG)
- Aviva (AV)
- AstraZeneca (AZN)
- Reckitt Benckiser (RB)
- HSBC (HSBA)
We will begin this guide by taking a look at some of the most promising blue chip stocks UK to consider buying in 2021.
1. Legal & General (LGEN)
As one of the UK's largest providers of insurance, Legal & General has a well-established reputation in the stock market. Not so surprisingly, the company has set forth a dividend plan for its future financial years.
According to the popular insurance brand, the dividend will be held flat for a year and will then increase annually by a lower single-digit percentage. Although at first glance this might not strike as an impressive increase, there are several upsides here.
For example, the forward dividend yield of over 6% is already above-average for such a large company. Additionally, this increase seems to be achievable and realistic.
The company's stock took a mild hit in the summer of 2020 but has steadily been rising since then. At the time of writing, Legal & General is trading at 272p per share.
2. Royal Dutch Shell (RDSA)
Royal Dutch Shell has been one of the best blue chip stocks UK for several years now. The company is focused on commodities such as oil and natural gas. However, it hopes to make the transition to become a worldwide producer and supplier of clean energy.
Currently, the company plans to spend 40% of its capital on its native oil and gas operations. In other areas, capital will be allocated for its transition and growth endeavours.
In 2020, the company reduced its dividends by 66%. However, given its resources, Royal Dutch Shell is likely to make quick progress towards achieving its goals. Meaning, the efforts for transition might translate to higher dividend payments in the future.
The first quarter of 2021 has already seen an increase in dividend rates by 4%. As of late March 2021, the company is trading at 1,484p on the London Stock Exchange.
3. Unilever (ULVR)
Along with Legal & General, Unilever is another blue chip stock that has increased the size of its dividend in the last few years.
Since the start of the pandemic, some of the products offered by Unilever, such as Domestos, have performed exceedingly well. Given its history, it is reasonable to assume dividend payouts will grow more in the future.
Following an underwhelming first quarter of 2021, Unilever has seen a slight drop in share value. However, this dip is not likely to affect the performance of the company in the long run. At the time of writing, this blue chip consumer goods company is priced at 4,042p per share.
4. Rio Tinto (RIO)
Rio Tinto is deemed one of the leading mining groups globally, with its establishments set up in 35 countries around the world. It produces metals including iron, aluminium, titanium, copper, borates, and diamonds.
If you look at the stock history of this company, you will notice that it has been performing steadily throughout the years. Rio Tinto is a dual-listed company, meaning you can find its stocks on both the LSE and the Australian Securities Exchange.
The company's dividend payout yield has also grown handsomely in the last few years. In essence, Rio Tinto ticks off all the boxes to fall within the remit of a blue chip stock. The company is currently priced on the LSE at 5,356p per share.
5. Total (TOT)
If you are looking at the best blue chip stocks listed on international exchanges, then Total can be a potential option for energy investors. The French company is listed in Paris, London, New York, and Brussels.
When its peers - such as Royal Dutch Shell, has since cut dividends, Total is offering its shareholders an impressive 7% yield - making it one of the best options for blue chip stocks in the energy scene.
Additionally, when oil companies are focused on transition, Total has opted for a halfway approach. This is one of the reasons why the company hasn't garnered much attention in the financial media.
Total has been performing quite well since 2013, except for a natural dip during the pandemic. The company shares are also relatively cheap at 170p.
6. Berkeley Group Holdings (BKG)
Berkeley Group Holdings is a British residential construction company that owns and operates five subsidiaries in London and southern England. The company primarily focuses on urban development as well as high-end neighbourhood projects.
This blue chip stock provides an encouraging outlook for those that want to build a passive income. The company has updated the market with four new sites for upcoming projects - indicating that its financial situation is sound and secure.
Of course, the company's performance is always dependent on the UK economy and the wider housing market. However, it has been a reliable stock to own in the blue chip category. The housebuilder is priced at 4,371p on the LSE at the time of writing.
7. Aviva (AV)
Aviva is another blue chip stock that can be a welcome addition to your portfolio. The insurance provider has been paying dividends for over ten years - attracting plenty of investors that seek steady income.
The share price of the company has been climbing in recent year, yet still is valued well below its former glory. After taking a hit during the first half of 2020, the blue chip stock has enjoyed a steady recovery.
As one of the most closely watched shares in the market, Aviva might be a buy for those interested in dividend and blue chip stocks - which is currently trading at 397p per share.
8. AstraZeneca (AZN)
AstraZeneca is a pharmaceutical blue chip company that is a major player on the FTSE 100 index. The shares have performed very well in recent years.
In 2020, the company's revenue and earnings increased in-line with market expectations, trading at highs of 9,320p.
Although the stock took a hit surrounding the controversy around its vaccine, recent positive news is likely to help recover its share price. Moreover, there is a respectable dividend yield of 2.7% on the table.
9. Reckitt Benckiser (RB)
This consumer goods company is among one of the most highly-priced stocks on the London Stock Exchange. Reckitt Benckiser boasts a wide range of brands that consumers use on a day-to-day basis, such as Harpic, Dettol, Lysol, and Vanish.
In 2020, the demand for hygiene products had been on the rise, and the company experienced a revenue increase of 8.9%. In terms of dividends, this has either stayed flat or grown over the years.
Given current market conditions, a dividend yield of 2.5% makes Reckitt Benkiser a blue chip stock worth considering for long-term portfolios.
10. HSBC (HSBA)
HSBC is one of the largest banks in the world with its headquarters situated in London. The company operates in 65 countries in total - although it generates much of its revenue in Asia.
The company has made it clear that it intends to keep dividend payouts steady in the near future. Although the company cancelled dividend payouts in 2019, it has since reported that it will recommence distributions in 2021.
The stock price of HSBC dropped in the latter half of 2020 when it sold at 283p in September. Since then, the shares have been rising in value and currently stand at 424p.
The Basics of Blue Chip Stocks UK
In the financial investment arena, blue chip stocks are considered a better alternative to riskier and less established companies.
Although the exact definition of blue chip stocks varies, the term generally applies to companies that share the following characteristics:
- Blue chip stocks are often leading establishments in their respective sectors.
- Most blue chip stocks have built a solid reputation over several decades.
- They have a steady track record of earnings.
- They have a large market cap.
- These companies have no significant outstanding liabilities.
- Most blue chip stocks distribute profits through dividends.
In addition, it is likely that the majority of blue chip stocks have suffered through bear market variations and survived them. Consequently, many of these companies have made way to the FTSE 100. For those unaware, the FTSE 100 is an index consisting of the 100 largest companies listed on the LSE, based on their market capitalization.
In effect, when you invest in blue chip stocks, the chances are you own shares in some of the most reputable and largest companies in the UK.
However, if the company does not perform steadily and its market capitalization drops, it is likely that it can also lose its title as a blue chip stock. Therefore, as we mentioned, the definition of a blue chip stock can be subjective from one investor to another.
The one common aspect is that investors generally hold on to blue chip stocks for many years or even decades - as they make for optimal long-term investments.
Read Also: Top FTSE 100 Stocks To Buy
Difference Between Blue Chip Stocks and Large Cap Stocks
At first glance, it might appear as if blue chip stocks are simply large cap stocks. However, in reality, there are a few notable differences.
Many large cap companies are not always strong enough to be categorized as blue chip stocks. There are dozens of companies with a market capitalization of over $10 billion, but only a fraction of them might be making regular profits.
For instance, nearly half of the companies that made up the FTSE 100 in 1999 when it peaked are no longer present on the index. This led to a transformation in the makeup of the current FTSE 100 as we know it today.
Former household names such as ICI and Abbey National have entirely vanished from the index or are now part of a much bigger corporate structure.
Another example is British Airways - which used to be listed on LSE as an independent stock and was a top name on the FTSE 100. But, in 2011, the company merged with the International Airlines Group - currently trading as IAG on the LSE.
As such, although large cap stocks can point to safety, they cannot be used as the only factor when deciding what to invest in. You have to account for the fact that some of the biggest companies might not stay that big forever. While many will continue to thrive, others can drop in value or disappear entirely.
Therefore, it is always important that you research and understand the stocks you are interested in - regardless of whether they have a large cap or blue chip status.
That said, there are many reasons why blue chip stocks dominate such a considerable market cap. The many years of steady earnings and cash flow management have led to that much-desired title of a blue chip stock.
Such firms have proved that they know how to handle their finances and manage their debts while outperforming the competition. These characteristics are why blue chips are able to navigate during a rough market period and always recover.
Why Should you Invest in Best Blue Chip Stocks UK?
Ask any investor, and they will tell you that one of the most important considerations is to build a diversified portfolio.
This balance can to be achieved in many ways - from different types of companies, varying risk levels, and more. With this in mind, blue chip stocks can play a critical role in creating a balanced portfolio.
Here are some factors that make blue chip stocks UK one of the best investments to consider.
Stable Balance Sheets
The balance sheet is a window towards the company's financial standing. Put simply, it can tell you whether the company has a strong or weak bearing in reference to its assets and other liabilities.
The best blue chip stocks are expected to have strong cash flows, as well as minimal debts. They should also have a wide range of assets or services that generate steady income. This diversification will help these companies to weather rugged market conditions.
Successful Business Models
As you can imagine, blue chip stocks have been successfully active in their respective marketplace for a long time. Meaning, their business models have proven to be profitable and adaptable for a sustained period.
For instance, BP is a prominent blue chip stock in the UK, founded in 1908. The company has stood through many downward market trends and has grown significantly over the years.
In stark contrast, Uber certainly cannot be deemed as a blue chip stock. It still has not made any profits nor pays out any dividends. However, both companies have a market cap of between $50-$60 billion dollars.
This only reinforces our previously-mentioned point that not every large cap company can fall into the category of a blue chip stock. Instead, they also need to have other aspects that contribute to making it a worthwhile investment.
Discounted Stock Prices During Market Downturns
It is common knowledge that the stock market fluctuates more often than not. Blue chip companies tend to recover during recessions, given that they play the market well.
If you are a long-term investor, such market downturns can also be an opportunity for you to invest in otherwise highly-priced blue chip stocks. If and when these companies come out of an unfavourable market, it is likely that they are headed back towards growth.
Passive Income from Dividends
One of the main attractions of the best blue chip stocks UK is that they pay dividends. This does not come as a surprise, as these companies tend to be strong, stable, and well-established in their respective sectors.
When a company experiences success, it often tends to share a part of its profit in terms of dividends to its stockholders. These dividend payments are determined in each quarter after reviewing the performance.
As you can imagine, the higher the profit - the better the dividends will be. This gives the investors the opportunity to make money in two ways - through capital gains as well as profit distribution.
That said, it is important to note that not every company is obligated to pay dividends to its shareholders. While some prefer to reinvest the profits back into the company, others might not earn enough to distribute much-needed cash flow.
Strong blue chip stocks in the market try to achieve all these aspects. That is to say, they make profits to pay dividends as well as fund their growth. Some blue chip stocks are also known for increasing their dividend payments on a regular basis.
Consequently, this makes them a great choice for your portfolio - as you can gain a fairly reliable stream of income along with the capital appreciation of the respective stock price.
What are Blue Chip Stock ETFs?
One way to make the most of your blue chip stock investment is to pick an ETF over individual companies. This is because you can find ETFs that invest primarily in blue chip stocks.
For instance, the lion's share of the FTSE 100 index is made up of blue chip companies. If you invest in an ETF that tracks this index, you will be able to gain access to a portfolio of diversified companies. While not every company might fit the blue chip criteria, the majority of them will.
One such example is the FTSE 100 UCITS ETF offered by Vanguard. Investing in this ETF means that you will be owning shares in all these highly-performing companies through a single trade.
Furthermore, these blue chip stock funds can be a great way to mitigate the risks during a market decline. This diversification strategy will help you smooth out the volatility of each individual stock and balance the performance of your portfolio.
Who Should Invest in Best Blue Chip Stocks UK?
As we have discussed, the financial goals of investors vary widely from one to another. If you are seeking to build a long-term portfolio with reputable companies with a history of regular profits and dividend payouts - there is no reason why blue chip stocks shouldn't appeal to you.
Compared to the other stocks, blue chip companies are widely considered less risky. This trait holds more significance during periods of economic uncertainty. Blue chip companies often have dependable earnings, even in bearish markets.
Therefore, these companies are ideally suited for long-term, risk-averse investors.
That said, it is always a good idea to include blue chip stocks in your portfolio no matter what your trading strategy is. It will help to bring more balance by reducing the risks.
Risks of Investing in Best Blue Chip Stocks UK
As with any other investment, blue chip stocks also carry risk. Yes, they might have a proven record of recovering from testing markets, but that does not make them immune to crashes.
We have already discussed some of the examples of companies that did not recover after the 2008 crash - such as British Airways.
Therefore, you cannot completely ignore the fact that blue chip stock investments might result in you losing capital. One common strategy to address this to set up a diversified portfolio. Meaning, you will be owning stocks in different companies in multiple sectors - limiting your exposure to a single market.
Check Out: Best Growth Stocks UK
Which Blue Chip Stocks Should You Invest in?
At the beginning of the article, we listed the 10 best blue chip stocks Uk for your consideration in 2021. Although these have great potential, it is imminent that you should do your own research before taking any investment positions.
In reality, it can take an investor several months, if not years, to build the skills to choose the right stocks. You will also need to dedicate a significant amount of time.
To give you an idea, there are a few steps that you can take to start your investment journey on the right foot. You can begin by gaining a general understanding of how the stock market works.
It is important that you familiarize yourself with trading orders, jargon, and technical terms that you will often come across in the investment arena.
Once you are confident, you can proceed to make a list of blue chip stocks that interest to you. You might either be inclined towards a specific industry or have companies that you prefer.
At this stage, you will actively need to perform fundamental analysis of each company in question.
This means you will have to consider the company's financials, stock price history, revenue growth, earnings reports, and any other factor that can offer you insight into the company's standing.
You should also be aware of how the company has reacted to market downturns before and how it has recovered - if at all. Also, make sure that you follow regular market news related to the industry.
In effect, you should dive deep into any factors that will help you figure out whether a blue chip stock is a worthy investment. When you have finally identified which blue chips stocks are best for your portfolio, you can log in to your trading platform and purchase the shares of the respective companies.
How to Invest in Best Blue Chip Stocks UK?
Do you consider blue chip stocks UK as a valuable addition to your investment portfolio? If so, we will now guide you through the different steps you need to follow to start your investment journey.
We have chosen an FCA-regulated broker, eToro, to illustrate the process - primarily because this online provider gives you access to over 2,400 stocks across 17 different exchanges. You will also be able to purchase blue chip stocks at zero commission and no stamp duty.
Regardless, the process is more or less the same on all online brokerage platforms.
Step 1: Create your Broker Account
Go to the homepage of eToro, and click on the 'Join Now' button in the upper right corner.
You will need to enter your personal information, including your full name, residential address, date of birth, and contact details.
As an FCA-regulated broker, eToro is also required to verify your identity. This means you will have to upload an identity card, such as the likes of a passport, and a utility bill.
Step 2: Deposit Funds
The next step is to ensure that there are sufficient funds for you to invest in blue chip stocks. eToro supports a number of payment methods - such as debit/credit cards, bank transfers, or third-party wallets such as PayPal.
Step 3: Purchase UK Blue Chip Stocks
You can enter the blue chip stocks you want to invest in by searching for them at eToro. This will lead you to the trading page of the respective stock.
Click on the 'Trade' icon and then specify how many shares you want to purchase. The minimum investment is just $50.
To complete your commission-free investment on eToro, click on the ‘Open Trade’ button.
You can now track the performance of the blue chip stock over time and hopefully - watch your profits grow.
Best Blue Chip Stocks UK - Conclusion
There are many reasons why blue chip stocks in the UK are monikered as a high-grade asset class. They often have a long-standing track record, with free cash flow, solid balance sheets, and consistent dividends.
If you are contemplating the idea of investing in blue chip stocks UK, the best way to do this is through an FCA-regulated broker such as eToro.
This will ensure that your interests and capital are protected as an investor. Most importantly, you will be able to invest in your preferred stocks without having to pay a single penny in commission - and UK stamp duty is waived!
eToro have proven themselves trustworthy within the stock market over many years – we recommend you try them out.
Your capital is at risk. Other fees may apply
Which companies are known as blue chip stocks?
There is no single way to define blue chip stocks. In broad terms, you tend to be investing in well-established firms with a solid track record.
Is the FTSE 100 made of only blue chip stock companies?
According to some commentators, all companies on the FTSE 100 index have a blue chip status. However, others might argue differently. Many businesses on the index are still comparatively new, and as such, cannot be considered as blue chip stocks.
How to choose the best blue chip stocks UK?
The best blue chip stocks for your portfolio will depend on your trading objectives. If you are looking for high dividend blue chip stocks, British American Tobacco paid a dividend of 6.7% in its latest distribution.
Is it a good idea to invest in a blue chip ETF?
Investing in a suitable blue chip ETF gives you access to dozens or even hundreds of companies through a single trade. The ETF provider will manage the shares on your behalf.
How to invest in blue chip stocks in the UK?
The best way to buy blue chip stocks UK is through an FCA-regulated broker such as eToro.