Blue chip ASX shares have been a staple of the Aussie share portfolio for decades. Companies like BHP Group Ltd (ASX: BHP) and Telstra Corporation Ltd (ASX: TLS) are often found in the ‘Mum and Dad’ investor’s portfolio.
There are a few good reasons to invest in blue chips at the best of times, but I think the investment thesis is even more compelling right now. Here are a few of my main reasons for investing in ASX blue chip shares in the current market.
A ‘two-speed’ economy is good for blue chips The coronavirus pandemic has certainly thrown investors a curve ball. After a strong recovery from the March bear market, we’re continuing to see volatility persist.
ASX blue chip shares like Commonwealth Bank of Australia (ASX: CBA) haven’t been immune. However, some sectors like retail and technology have really outperformed.
I think significant size is a big factor here. Those companies with multi-billion-dollar market capitalisations can go on the attack as the economy stabilises to snap up smaller competitors for a nice price.
Not all investors love acquisitions, but I think everyone can agree that buying underperforming assets for a cheap price is good for investors’ returns.
ASX blue chip shares have strong institutional backing By virtue of their size, these top Aussie companies have strong institutional investor backing. That’s good news if they need to raise more debt or equity, where their smaller peers may not see the same demand.
That should give the average ‘retail’ investor confidence in Aussie blue chips right now. We’ve seen it recently with some monster capital raisings from the likes of Sydney Airport Holdings Pty Ltd (ASX: SYD) and Cochlear Limited (ASX: COH).
If fund managers and insiders are putting their money where their mouths are, I’m more likely to consider buying into these ASX blue chip shares as well.
Strong cash generation is good for dividends If there’s one thing ASX blue chip shares can do well, it’s generate some serious cash.
For instance, Telstra posted free cash flow of $3.4 billion despite a 14.4% drop in its full-year net profit after tax.
That means we could see blue chip dividends maintained in FY21 if these large companies can continue to operate strongly.
Foolish takeaway These are just a few of the reasons I like ASX blue chip shares right now. The S&P/ASX 200 Index (ASX: XJO) has slumped 7.4% in 2020 but I think these large-cap companies could provide some strong income in 2021.
The post Why it’s always a good time to buy blue chip ASX shares appeared first on Motley Fool Australia.
Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Cochlear Ltd. The Motley Fool Australia owns shares of and has recommended Telstra Limited. The Motley Fool Australia has recommended Cochlear Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2020
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