If you’re looking for suggestions, our blue chip stocks list will provide you with guidance

We feel most investors should hold the largest part of their investment portfolios in securities from blue chip companies. Ideally, 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 in expanding markets.

Below we feature a blue chip stocks list of investments we have recommended in the past (subscribe to Stock Pickers Digest to stay up to date on our current picks of more aggressive stocks.)

How our blue chip stocks list can benefit you

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 price of the investment. It’s an indicator we pay especially close attention to when we select stocks to recommend in our investment newsletters.

Tips to know before diving into our blue chip stocks list

Blue chip stocks we recommend have a history of earnings and, in most cases, dividends. They have established their value over the long term. Like all stocks, they can fluctuate widely and many 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.

Here’s how we suggest investing in blue chip stocks:

• Avoid or downplay stocks in the broker/media limelight.
• Be wary of any blue chip stock with an unusually high dividend yield
• Invest mainly in high quality stocks.
• Spread your stocks over the five main sectors.
• Look for hidden assets in real estate or branding

Examples of blue chip stocks:

• Bank of Nova Scotia (Toronto symbol BNS) is Canada’s third-largest bank.
• BCE Inc. (Toronto symbol BCE) is a major telephone service provider in Ontario, Quebec, and Atlantic provinces.
• Canadian Pacific Railway Ltd., (Toronto symbol CP) transports freight over a 22,000-kilometre rail network between Montreal and Vancouver, as well as hubs in the U.S. Midwest and Northeast.
• International Business Machines Corp. (New York symbol IBM) is one of the world’s largest computer companies with operations in over 175 countries.
• Wells Fargo & Co. (New York symbol WFC) is a major bank in the U.S.

How the best blue chip stocks can benefit your portfolio

We advise investors to look for blue chip companies that are likely to pay off if business and the stock market are good, but that won’t hurt them too much during those inevitable periods when business or the markets are bad.

If you follow our three-pronged approach—diversifying across most if not all of the five main economic sectors, stick mainly to well-established companies and companies outside the media limelight—then you can be almost certain of long-term gains in excess of what you’d get with any other investment approach.

In a deep or long-lasting market setback, your blue chip stocks will tend to go down, along with everybody else’s. But we think they will go down less and recover sooner.

Avoid selling your blue chip shares too early

It’s all too easy to sell a stock that looks like it’s headed for a downturn, only to buy another that is headed for a collapse. For that matter, if you make a habit of selling whenever you feel the market’s risk has gone up, you will wind up selling your best stocks way too early.

Before you act on a selling rationale, take a broader look. Consider facts about the stock, and about your investment goals and temperament. It’s always a bad idea to sell a good stock for trivial or transitory reasons.

Do you own any of the investments on our blue chip stocks list? How have they performed for you? Share your experience with us in the comments.