Markets 101: What are ‘Blue chip companies’?

The term ‘Blue Chip’ comes from poker where the highest and most valuable playing chip is colored blue. It therefore goes without saying that a company dubbed such a name will exemplify; high profitability year on year, probably the market leader in its sector, lucrative dividends yearly and will be mostly regarded by investors as a ‘safe haven’. Blue chips however have reputations of being outdated (have been in the market for a long time) and boring, they will therefore feature on portfolios of retirees, non-profit foundations and conservative investors.

Based on the above understanding; this stock counter at Uganda Securities Exchange (USE) can or should be regarded as a ‘blue chip’.

Stanbic Bank Uganda (SBU) – It is the largest company at USE by market capitalization (market value of total shares issued). A close comparison to other listed financial institutions, i.e. Bank of Baroda and DFCU, SBU enjoys a lion share of the market evidenced by its annual revenues. SBU’s dividend payout history can also give a semblance that it’s indeed a blue chip. In 2008 the dividend per share stood at Shs.5.86, in 2009 this increased by more than 100% to Shs. 13.08. In 2010 however when it reported lower distributable profits compared to those in 2009, SBU went ahead and paid out Shs. 7.03 per share held.

Remember there is no clear cut definition that will pin point a ‘blue chip’ it’s a combination of several cues characteristic of a stock that will do so.

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