A blue chip stock is the description of the stock of well-established companies having stable earnings and no extensive liabilities. Most blue chip stocks pay regular dividends, even when business is faring worse than usual. They are valued by investors seeking relative safety and stability, though prices per share are usually high. Typically, such stocks are perceived to offer reliable returns, low-yield, and low-risk.
Many blue chips are components in popular indices, such as the Dow Jones Industrial Average and the S&P 500.
Alternately, blue chip stocks are sometimes defined as companies whose stocks have large market capitalization values (for example, over $1 billion.)
The term comes from the blue-colored chips, which are typically the most valuable in the game of poker. Examples are Royal Dutch Shell (petroleum), The Coca-Cola Company (food) and IBM (IT)
Stocks with market price below 1 unit of the local currency are called penny stocks (although it is not uncommon for stocks up to $5 to also be referred by this name). These are often rather inactive, small-cap stocks. Due to their small-cap and illiquid nature, at times they can be speculated to high volatility.