Blue-chip shares are the largest and most reputable, mature and financially sound companies. These firms are usually leaders in their respective industries and have an established track record of success and performance. In addition to this, they are usually included in a recognised index. In the UK, companies that are part of the FTSE 100 are often referred to as blue-chip shares.
It is worth noting that while all these stocks are large caps, not all large-cap stocks are blue-chips. The constituents of the FTSE 100 change on a quarterly basis.
Here are two blue-chip stocks I’d add to my holdings.
Stock #1
Consumer goods giant Unilever (LSE:ULVR) has a powerhouse portfolio of brands that span food and drink, home care, and beauty, and it has a worldwide reach.
As I write, Uniliever shares are trading for 3,717p. At this time last year, the shares were trading for 4,231p, which is a 12% drop over a 12-month period of time. The shares look good value for money currently, on a price-to-earnings ratio of 17. This is slightly above the FTSE 100 average of 15, but paying a premium for a top-quality company with sound fundamentals is a no-brainer for me.
Unilever has an excellent track record of performance. I do understand that past performance is not a guarantee of the future, however. Looking back, I can see that revenue and gross profit have been consistently £50bn and £22bn for the past four years.
Another aspect I like about Unilever is that it is a dividend stock that would boost my passive income stream. The shares currently offer a dividend yield of just over 4%. This is very close to the FTSE 100 average yield of between 3% and 4%. Unilever has paid a consistent dividend since 1990!
The bad news? Even blue-chip shares have risks. Recent macroeconomic headwinds could have a material impact on sales, revenue, and profit. Soaring inflation and rising cost of raw materials could impact all these aspects. This could affect the bottom line and investor payout.
Stock #2
Diageo (LSE:DGE) is one of the biggest alcoholic drinks companies in the world with a brand portfolio including Johnnie Walker, Smirnoff, and Guinness. It operates in 180 countries with North America being its largest region, accounting for most of its sales.
Alcohol giants are often regarded as resilient businesses because people will choose to drink whether they are celebrating or drowning their sorrows.
Diageo shares are currently up 23% over a 12-month period. Currently trading for 4,007p, they were trading for 3,251p at this time last year.
The bad news is that Diageo shares are trading close to all-time highs. This means any bad news or trading issues could send the shares tumbling. Diageo also currently faces macroeconomic headwinds such as increased costs that could affect performance and investor payout.
Diageo also has a good track record of performance and paying a dividend. Looking back, I can see revenue has hit the £12bn mark for three of the past four years. In 2020, revenue dropped just below this mark due to the pandemic. Diageo’s dividend yield currently stands at 2%. This may not be the highest among blue-chip shares, however, it has a good record of consistently paying and increasing dividends.