Blue Chip Shares Australia: The Beginner's Honest Guide
What are blue chip shares in Australia? What they are, why investors like them, their real risks, franking credits, and whether a broad ASX ETF might suit you better.
By Timothy Hirou GaschereauPublished 12 min read
Try it yourself
Blue chip shares are the household names of the sharemarket: the big, established companies most Australian investors reach for first. They have a genuine appeal, but "big and familiar" is not the same as "safe" or "the best way to invest", and the differences matter.
Here is the honest guide: what blue chips are, why investors like them, their real limitations, and whether an ASX ETF might actually be the smarter way for a beginner to own them. For the basics of buying shares first, see how to buy shares in Australia.
🎯 The essential: Blue chip shares are large, well-established ASX companies with long track records and usually reliable (often fully franked) dividends: the major banks, BHP, Rio Tinto, CSL, Woolworths, Wesfarmers, Telstra, Macquarie. They offer relative stability and liquidity, but they are not risk-free, growth is slower than smaller companies, and picking a few concentrates you in banks and miners. For most beginners, a broad ASX ETF like VAS or A200 gives you all the blue chips (plus everything else) in one diversified, low-cost trade.
What are blue chip shares?
Blue chip shares are shares in large, financially sound companies with long operating histories, stable earnings and usually reliable dividends. The term comes from poker, where blue chips are the highest-value chips at the table. On the ASX they are typically the biggest companies by market cap: the banks (CBA, Westpac, NAB, ANZ), miners (BHP, Rio Tinto, Fortescue), consumer and industrial names (Woolworths, Wesfarmers, Telstra), healthcare (CSL) and financials (Macquarie). Worth knowing upfront: "blue chip" is a description, not an official ASX category. The closest formal list is the ASX 200 or ASX 100, the indices of Australia's largest listed companies.
Why investors like blue chip shares
- Relative stability: large, diversified businesses with established revenue swing less than small-caps. Less extreme, not immune.
- Dividends, often fully franked: many Australian blue chips pay franked dividends, a genuine tax advantage (more below).
- Liquidity: they trade millions of shares a day, so you can buy or sell quickly without moving the price.
- You already own them via an ETF: blue chips are the largest weights in the ASX 200, so a broad ASX ETF already holds them.
- Track record: decades of history through the GFC, COVID and rate cycles gives you real data to work with.
The honest limitations (read before you buy)
This is the part most blue-chip articles skip.
- Lower growth potential: a $200 billion company will not double in two years. You trade growth for stability.
- Concentration risk on the ASX: the market is heavily weighted to banks and miners, so a handful of blue chips often is not diversification at all.
- Not risk-free: BHP has had multi-year falls in commodity downturns, the banks fell hard in the GFC and 2020, and Telstra spent years below its ~$6.59 peak from 2015 as the NBN gutted its model.
- Dividends can be cut: in 2020 NAB cut its dividend by 64%, Westpac suspended its entirely, and more than 30% of ASX 200 companies deferred or cut. It happens to the biggest names.
- Rate and inflation sensitivity: a concentrated bank-heavy portfolio is a bet on the rate cycle whether you realise it or not.
The franking credits advantage
Australian blue chips often pay fully franked dividends, a genuine tax advantage for local investors. When an Australian company pays 30% corporate tax on its profits, it can attach franking credits to its dividends representing tax already paid, which reduces your own tax bill. Example: a $700 fully franked dividend carries a $300 franking credit, so your assessable income is $1,000; on a 32.5% marginal rate you owe $325 but already hold a $300 credit, so you pay just $25 extra (and below 30%, you may get a refund). This is especially valuable for retirees and lower-income investors. See our guides on franking credits and how dividends are taxed. Not every company pays fully franked, though: international and offshore-earning companies pay unfranked or partial, so check first.
Blue chips vs a broad ASX ETF
| Individual blue chips | Broad ASX ETF (VAS/A200) | |
|---|---|---|
| Diversification | Concentrated (5-10 names) | 300+ companies in one trade |
| Effort | Ongoing research and monitoring | Set and forget, auto-rebalanced |
| Cost | Brokerage per trade, no MER | Tiny MER (~0.04-0.07%) |
| Franking | Depends on your picks | Broad mix, passed through |
| Risk | Concentrated in your names | Spread across the market |
| Best for | Picking specific companies | The whole market, cheaply |
For most beginners, a broad ASX ETF like VAS or A200 is a simpler, more diversified, lower-cost way to own the blue chips: you get CBA, BHP, CSL, Woolworths and the rest, plus everything else, without picking and monitoring individual names. Individual blue chips suit investors who genuinely want to choose specific companies and are comfortable with concentration. Neither is wrong, they just suit different people. Our best ETFs guide covers the options.
How to evaluate a blue chip (education, not tips)
If you do want to own individual blue chips, these are the questions to ask (not a checklist that guarantees a good result):
- Market cap and track record: is it one of the largest, longest-listed companies, and has it survived multiple cycles?
- Consistent earnings and dividends: look at a 5 to 10 year history, not just last year.
- Manageable debt: check the debt-to-equity and interest coverage; high debt amplifies risk in a downturn.
- Competitive position (moat): what durable advantage stops a rival eating its lunch?
- Dividend sustainability: a payout ratio of 90%-plus leaves little room and can force a cut if earnings dip.
- Sector diversification: spread across banks, miners, healthcare, staples and industrials rather than owning five banks.
How to buy them, and the tax
Through any ASX broker (CommSec, SelfWealth, Stake, Pearler): search the ticker (BHP, WOW, CBA) and place an order, with brokerage typically $5 to $20 a trade. Start diversified rather than tipping everything into one or two names, and consider whether a single ETF trade gives you the exposure more simply. On tax: dividends are taxed at your marginal rate with franking credits attached, and selling at a profit triggers CGT with the 50% discount if held 12 months or more (our CGT on shares guide has the detail). Capital losses can offset gains.
Frequently asked questions
What are blue chip shares?
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Shares in large, well-established, financially sound companies with long track records and usually reliable dividends. The term comes from poker, where blue chips are the highest-value chips. On the ASX they include the major banks (CBA, NAB, Westpac, ANZ), big miners (BHP, Rio Tinto) and large names like Woolworths, CSL, Telstra and Macquarie. It is a description, not an official category.
Are blue chip shares a good investment for beginners?
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They can be, but they are not risk-free or automatically the best choice. Blue chips are generally less volatile than speculative stocks and many pay fully franked dividends, but they can fall significantly, dividends can be cut, and buying a handful of individual names means concentration risk. For many beginners, a broad ASX ETF is a simpler, more diversified starting point.
What are the best blue chip shares in Australia?
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We do not give specific stock tips (personal recommendations require an AFS licence). What we can say is that evaluating blue chips means looking at market cap, track record, earnings consistency, dividend history, debt levels and competitive position. The ASX 200 is a useful starting point for identifying Australia's largest companies; a licensed adviser can tailor recommendations to you.
Do blue chip shares pay dividends?
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Many do, and Australian blue chips often pay fully franked dividends that carry a tax credit for the corporate tax already paid, a genuine advantage for Australian investors. But dividends are not guaranteed: in 2020 several of the biggest ASX names, including the major banks, cut or suspended dividends. Do not treat a dividend history as a promise.
What is the difference between blue chip shares and an ETF?
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Blue chip shares are individual companies. An ETF like VAS or A200 holds hundreds of companies in one trade. Buying individual blue chips means concentration and ongoing research; an ETF gives instant diversification across the whole market (including all the blue chips) for a tiny fee (about 0.07% for VAS, 0.04% for A200). For most beginners the ETF is the simpler, more diversified option.
Are blue chip shares safe?
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No investment is safe. Blue chips are generally less volatile than speculative stocks, but they can and do fall significantly. BHP has had multi-year declines in commodity downturns, the major banks fell sharply in the GFC and again in 2020, and Telstra spent years well below its 2015 peak. Past stability does not guarantee future performance.
Keep reading
Books worth reading
📚 Recommended reading
The Barefoot Investor
Scott Pape
The Barefoot Investor
Scott Pape
Australia's best-selling money book ever. A simple system for accounts, budgeting, debt and a real emergency fund in one.
Girls That Invest
Simran Kaur
Girls That Invest
Simran Kaur
A no-jargon crash course from the podcaster behind Girls That Invest that makes the sharemarket feel doable, written especially for women starting out. The perfect first step before you buy your first ETF.
The Intelligent Investor
Benjamin Graham
The Intelligent Investor
Benjamin Graham
The value-investing bible Warren Buffett calls the best book on investing ever written. It is old-school and US-flavoured, so read it for the timeless mindset on risk and 'Mr Market', not the specific stock tips.
Some links above are affiliate links. If you buy through them, Snowball Invest may earn a small commission at no extra cost to you. We only recommend books we'd suggest anyway.
Sources
- ASIC Moneysmart, shares
- ASX, start investing
- ATO, refund of franking credits for individuals
- ATO, capital gains tax
General information only, not personal financial advice, and no specific stock recommendations. It does not take your circumstances into account. Consider your own situation and a licensed financial adviser before investing. Past performance is not a reliable indicator of future performance.
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General information only. This article is educational and does not constitute personal financial advice. It does not account for your circumstances. Consider your own situation and seek advice from a licensed adviser before acting. Read our full disclaimer.
Timothy Hirou Gaschereau
Founder of Snowball Invest, not a financial adviser.
I write about what I'm learning myself, because nobody ever taught us how to take control of our own money. It's a skill, not a mystery, and it's never too late to learn it. The best day to start was yesterday, the second best is today.
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