In addition to being one of the most advanced financial markets in the world, the London Stock Exchange sports a variety of blue chip stocks on its vast trading floors. This is partly what makes the London Stock Exchange so favorable for international trade.
Blue chip stocks are stocks that are widely believed to be safe, bankable, and secure investment options. These kinds of stocks generally pay relatively stable dividend rates, and hence attract a large number of investors. Some prominent blue chip companies listed on the London Stock Exchange include GlaxoSmithKline (LSE:GSK), the Royal Bank of Scotland Group (LSE:RBS), Rio Tinto (LSE:RIO), and British American Tobacco (LSE:BATS).
Blue chip stocks can arguably be likened to an “ace in the hole”, in that they form the bedrock of many investors’ portfolios. Moreover, they are usually bought under the justified impression that they will prove to be as safe and solid as any stock or financial security can possibly be. The security and peace of mind such stocks usually afford investors serve to free them up, or provide sufficient flexibility for them, to chase after relatively riskier and accordingly higher-yielding investments.
The “ace in the hole” comparison used above becomes especially interesting when one considers that the name “blue chip” was actually coined in the 1920s, from a stipulated comparison with the blue poker chips which carried the highest value in the game at the time. But comparisons made between stock investments and poker games is hardly surprising in light of the fact that both endeavors involve a considerable level of gambling, albeit to varying extents.
One important question prospective UK financial securities investors should be asking is whether blue chip stocks in the UK actually live up to their name and are still largely viable. Before laying all one’s eggs in a blue-chip stock ‘basket’ so to speak, informed speculations as to how well the blue chip company concerned is likely to be able to sustain its ‘blue-chip-ness’ should be made. After all, a number of blue chip companies such as Wal-Mart and Intel Corporation have been known to hit rough patches in the past, in spite of their rather impressive track records in terms of stock valuation and profitability.
Some things to look out for in one’s assessment of the continued viability of a blue chip company’s stock would naturally include the company’s ability to generate sufficient earnings to cover both its running costs and dividend payouts, its level of cash flow, the efficiency of its debt management systems, its response capacity for evolving economic conditions, the strength of its management board, the nature of its competitive edge, and sheer size.