We believe conservative investors should focus on blue chip stocks, examples of which include the highest-quality investments on the market

You can still look at blue chips as the strongest and most secure stocks on the market. These companies hold strong positions in healthy industries, and they have sound management that will make the right moves to remain competitive in a changing marketplace. Stocks like these give investors an additional measure of safety in today’s volatile markets.

Are you interested in blue chip stocks? Examples and characteristics of the best of these investments are as follows:

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Blue chip stock examples: Here’s what to watch for

Blue chip stocks we recommend have a history of earnings and, in most cases, a history of sustainable dividends. They have established their value over the long term. Like all stocks, they can fluctuate widely and many will suffer in a long-term market downturn, but they offer a higher probability of long-term gains.

We feel most investors should hold a substantial portion of their investment portfolios in securities from blue chip companies. These stocks should offer good “value”—that is, they should trade at reasonable multiples of earnings, cash flow, book value and so on. Ideally, they should also have above-average growth prospects, compared to alternative investments.

The best blue chips offer both capital gains growth potential and regular dividend income. The dividend yield is certainly one of the most concrete indicators of a sound investment. It is the percentage you get when you divide the current yearly dividend payment by the share or unit price of the investment. It’s an indicator we pay especially close attention to when we select stocks to recommend in our investment newsletters.

Furthermore, blue chip stocks may also have hidden assets

Some good blue-chip investments may have hidden assets in the form of real estate.

For instance, when a company buys real estate, the purchase price goes on its balance sheet as the historical value of the asset. Over a period of years or decades, the market value of that real estate may climb substantially, but the purchase price remains unchanged on the balance sheet. You have to look closely to spot this hidden value. At times, the hidden value in a company’s real estate can come to exceed the market value of its stock. This hidden value may only become apparent to investors when the company upgrades the use of the real estate. For example, a merchandiser might repurpose a parking lot to build a shopping mall with a residential condo tower on higher floors, and a parking garage down below.

Companies may have a hidden asset in their relationship with a clientele of loyal customers. After a series of satisfactory dealings, long-time customers develop a level of trust that makes them receptive to related offerings from the company. For example, Apple Computer was able to move into the digital music player and smartphone businesses as quickly as it did because it had an established core of fans for its Mac computers.

The top four characteristics of blue-chip stocks:

• Blue chip investments should have industry prominence if not dominance.
• Blue chip investments should pay dividends.
• Blue chip investments should have low debt.
• Blue chip investments should have the freedom to serve (all) shareholders.

Blue chip stocks: Examples of recognizable blue-chip companies 

• Great-West Lifeco is Canada’s second-largest insurance company, after Manulife Financial. It also offers mutual funds, retirement planning and wealth management. Power Financial owns 67.1% of Great-West.
• 3M started in 1902, when it was called the Minnesota Mining & Manufacturing Company. Today, 3M makes more than 55,000 items, including air purifiers, medical device components and bandages. Its top-selling brands include Post-it notes, Scotch tape, Scotch-Brite cleaning products, Scotchguard protection and Thinsulate insulation.
• FedEx began offering air-delivery services in 1973, under the Federal Express banner. It’s now one the world’s largest shipping firms.
• Imperial Oil is Canada’s second-largest publicly traded oil company, after Suncor Energy. Imperial is a 69.6%-owned subsidiary of U.S.-based ExxonMobil (New York symbol XOM).
• Microsoft is the world’s largest software company. Its Windows operating system powers about 90% of the world’s personal computers. Microsoft’s other main product— its Office suite, which includes a word processor (Word) and spreadsheet program (Excel)—controls 90% of its market. Over the years, Microsoft has expanded into computer-hardware products, including its Xbox video game console and Surface tablet computer.

Blue chip stocks: Examples of the best blue chips can be found with our three-part investing philosophy 

• Hold mostly high-quality, mostly dividend-paying stocks.
• Spread your money out across most if not all of the five main economic sectors: Manufacturing & Industry, Resources & Commodities, Consumer, Finance and Utilities.
• Downplay or stay out of stocks in the broker/media limelight. 

How much safety have your blue chip holdings offered in past volatile markets?