The top ASX-listed blue chip stocks to watch

What are blue chip stocks?

A blue chip stock is defined as an equity security issued by a leading company that is extremely large and well-established.

The term implies that such stocks offer a higher level of quality and safety than other investment options on the capital market.

The phrase 'blue chip' originates from the poker scene, where value of the chips is based upon their colour. Chips that are blue in colour are the most valuable, worth far more than those that come in other hues such as white or red.

Companies that are considered blue chip are invariably extremely well-known, ranking amongst the leading players within their respective sectors. They are also very large in size, with market capitalisations that run into the multiple billions.

Given that blue chip status is based upon reputation and quality, such companies have usually been in operation for many years, with reliable sources of revenue and steady dividend payments.

The chief advantages of investing in blue chip stocks include stability and resilience, with lengthy track-records of sound business performance. Their well-established positions often enables them to better weather periods of economic downturn or turmoil.

Another major advantage of blue chip stocks is that many of them are in the habit of paying regular dividends to shareholders, making them a solid source of passive income for investors.

Blue chip companies are easy to find, given their size and reputability make them the first contenders for inclusion in stock market indices designed to reflect overall market performance.

The ASX is a solid source of blue chip stock opportunities for both domestic investors in Australia and global investors that hail from other jurisdictions.

Australia is an advanced economy that enjoys a long-standing track record of excellent political stability.

The country lays claim to excellent legal and financial systems, that serve as the bedrock for its appeal as an investment destination.

In addition to underpinning economic growth, these features can bolster overall market performance by enhancing trust for investors.

The Australian stock market is especially well-known for its strong finance and resource offerings, given the disproportionate role that these two sectors play in the country's economy.

The top ASX-listed blue chip stocks to watch

Here is a list of four of the top blue chip ASX stocks to watch, for those investors keen on acquiring equity stakes in Australia's most renowned listed concerns.

Commonwealth Bank of Australia (ASX: CBA)

The Commonwealth Bank of Australia is one of Australia's big four depository institutions, and had its origins as a state-owned lender that was first founded by the Andrew Fisher Labor government in 1911.

CBA was listed on the ASX in September 1991 and fully privatised in 1996. By 2015, it had emerged as the largest listed company on the ASX, transforming into a multinational financial institution with operations spread across Asia, the US and the UK.

The bank posted a $5 billion cash profit for the first half of the financial year, just short of a record six-month profit logged the year previously.

CBA is now taking the lead amongst Australia's big four bankers in shrinking its home loan assets in a bid to 'deliver sustainable returns.'

Rio Tinto (ASX: RIO)

Resources giant Rio Tinto Limited is the world's second largest mining corporation after fellow ASX blue chip stock BHP.

The company's highly diversified operations put it in good stead to perform soundly across a variety of market conditions.

In addition to iron ore and aluminium, Rio Tinto is also involved in the extraction and process of copper, diamonds, precious metals such as gold and silver, and uranium.

Goldman Sachs believes that now might be a good time to consider Rio for investors in search of dividend stocks. It's given Rio a buy rating with a target price of $140.50.

The investment bank expects fully franked dividends per share of A$7.07 in FY2024 and A$7.09 in FY 2025, which given Rio's recent share price of around $129.00 could result in yields of 5.5%.

CSL Limited (ASX: CSL)

Biotech giant CLS had its origins as a state-owned research laboratory that was first founded by the Australian federal government in 1916.

The company was privatised in 1994, and since then has emerged as a leading producer of a diverse range of medical products, including vaccines and antivenom as well as blood plasma derivatives and cell culture reagents used for research purposes.

While the company's PE ratio currently hovers at over 42 based on statutory earnings per share (EPS) from its FY23 results, some analysts are still upbeat about the blue chip stock's prospects.

UBS has a buy rating for CSl with a target price of $340, with expectations that CSL will generate EPS of US$6.37 in FY24. It then expects a further 18% rise in EPS to US$7.50 for FY25.

Westfarmers Ltd (ASX: WES)

Perth-headquarterd Wesfarmers owns a slew of Australia's most well-known retail brands, including Bunnings, Kmart, Target and Officeworks.

It also has industrial businesses covering chemicals, fertiliser and safety products.

This portfolio of operations makes WES one of Australia's largest companies in terms of revenue, as well as one of its biggest private employers with over 100,000 staff.

The company's latest half-yearly results point to revenues of A$23 billion, roughly in line with consensus expectations. WES beat analysts forecasts when it came to profits, however, with statutory EPS of A$1.26.

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