What constitutes a Blue Chip Share?
‘Blue Chip’ shares are generally considered to superior investment choices. This comes about from a monopoly or oligopoly market position, leading to reliability of profits, share price growth, dividends, business longevity and a degree of customer loyalty.
Most online lists purporting to identify the Australian Blue Chips throw up this list, which is simply the top 10 ASX listed companies by market capitalisation value, in alphabetical order. The largest of these is CBA.
- BHP Group Limited (BHP): $169 billion
- Rio Tinto Limited (RIO): $176 billion
- Commonwealth Bank of Australia (CBA): $185 billion
- Westpac Bank Corporation (WBC): $83 billion
- ANZ Group Holdings Limited (ANZ): $53 billion
- National Australia Bank Limited (NAB): $69 billion
- Insurance Australia Group Limited (IAG): $12 billion
- Woodside Energy Group Ltd (WDS): $68 billion
- Telstra Group Limited (TLS): $32 billion
- Wesfarmers Limited (WES): $55 billion
Our analysis will show that investing in many of these companies on the basis of the size alone can be shown to have been a very bad choice.
BHP for example, the ‘Big Australian’ while providing briefly very impressive dividends some years ago, is up just 10.8% over the last 5 years, as of January 2025, while the ASX200 has grown 17.6%. These values represent a CAGR of just 2.1% and 3.1% respectively. When taking into account BHP dividends, the return improves significantly, however it is still a figure that has rarely made double digits.
With inflation over this period somewhere between 2% and 7%, nett returns have been dismal. Yet people and index funds are still buying BHP shares. Go figure!
Tesla has over the last 20 years lost 5.9% in value while currently paying a dividend of 3.9%. The share price is currently only just revisited the value it had fallen to in February 2017! If you happened to pick the bottom of the market in 2018, you are sitting on a 10% CAGR including dividends. This beats the ASX200, but over the same period the SP500 gained 13% CAGR without needing to have bought in a very small window.
Over time, the other ‘blue chips’ will be given the same analysis to reveal which ones have actually provided a respectable return, and we will demonstrate how to calculate the CAGR.