Ultimate guide on how to invest in blue chip ASX shares in 2022

Highlights 

• ASX blue-chip stocks are generally large companies with a solid financial track record. 
• Their market capitalisation is typically higher than the other companies. 
• The Australian financial sector comprises of a large portion of the top 50 shares. 

ASX blue-chip companies are large companies with a solid financial track record and have a large market cap. Along with this, these companies provide significant dividends and have a firm name in their respective industry. 

While these stocks are relatively safer investment options, they usually don’t rise in the short-term frame, making them long-term investments. This article will highlight useful tips and tricks that can help investors while trading in ASX blue-chip stocks. 

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Even though blue-chip companies don’t rise considerably in the short-term, like small-cap stocks, investors look out for these stocks mainly for capital growth and dividends. While most value stocks don’t provide high returns, they provide income, they help in maximising the return in the short term keeping a check on market risks to be minimum. 

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However, investors should research some top ASX blue-chip shares that can offer secure investments with lower risks. Therefore, they need to pick up the companies carefully. 

Here are some points that investors should lookout for a while investing in blue-chip stocks– 

Dividend Yield – 

Large-cap Australian companies are usually less volatile. This is because they pay dividends to their shareholders, providing them with an income stream. For example, many ASX blue-chip companies pay out their dividends twice a year, at an average of 5-6%. Therefore, investors should look after the dividend yield of the individual blue-chip stock they plan to buy. The dividend yield also compares favourably to term deposit rates and comes with tax advantages in franking credits. 

Strong operating profitability 

While investing in ASX blue-chip stocks, investors should especially pay attention to the company’s operating finances -cash flow return on assets. While cash flow return on assets is like return on assets, it focuses more on the cash flow. 

Also, investors should keep a close watch before choosing to invest in those blue-chip companies that are excessively reinvesting excess of their free cash flow into their business. 

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Price to book ratio

Investors should check whether the company is expensive or not. A simple formula can help the investors, i.e., share price divided by the company’s net asset per share. Although it involves some work, Price to book ratio gives similar results as the simple PE and is more easily comparable across the industries.

Some other points – 

Apart from financial metrics, there are some other important points that investors can consider before investing in blue-chip stocks – 

• Before jumping into an investment, investors should set goals and can also seek financial advice when required. 
• Blue-chip stocks also provide capital growth when the share price of the respective company increases; hence, investors are advised to keep patience. 
• According to experts, blue-chip investors should consider all their investment options before making their investment. 
• As the equity market fluctuates, investors should look at the price chart before beginning with their trading. 
• Investors should carefully consider the– day/week/1 year/ 5-year value of the stock. 

While investing in blue-chip stocks, investors should also keep an eye on sustainable yield. Strong fundamentals like – balance sheet, profit growth and cash flow are some essential financial vehicles that modern-day investors majorly follow. 

Bottom line –

As Australian blue-chip companies provide a stable income because they are already established, investors looking for long term growth should focus on the fundamentals and yields. Also, nothing is 100% guaranteed in the stock market. Therefore, experts suggest those ASX blue-chip stocks, which are value oriented.