Blue-Chip Stocks: The Best Shares to Buy in Kenya

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It’s a fact. To consistently make money investing, you’ll need investments that are not only strong and stable today, but that will remain so for a long time.

So whether the economy is doing well or not, or companies are going through negative business cycles, you must invest in great assets.

How do you identify and invest in them? Ask any seasoned investor, and the term blue chip stocks will likely come up.

What are blue chip stocks?

Blue chip stocks are the stocks of well-established, well-known, and high-quality companies that have a reputation for being consistently profitable.

They are usually massive companies operating in established markets. They are businesses that have a track record for delivering quality value to customers, and they are typically market leaders in their niche.

Their profitability is what makes them popular with investors. And that’s because they have a long-standing reputation for making good returns and paying dividends.

Take Safaricom, for example.

Not only is it the market leader in the telecoms sector, but it’s also one of the most profitable companies around. Regardless of the economy’s state, people will always need airtime or mobile money transfer. This means it's a stable business with stable returns, making it one of the best dividend stocks in Kenya.

Also Read: How to Buy Stocks in Kenya.

When is a stock considered to be a blue chip?

There is no fixed consensus about what, exactly, makes a blue chip stock. But a few things cut across. The following are some factors that can identify a good candidate:

  • They have a large market capitalizationmarket cap is a measure of the value and size of a company. It’s the total cash value of all the outstanding shares of a company. Blue-chip companies usually have market caps worth billions. They command a huge market share in their respective sectors, which translates to massive operations, making them substantial businesses.
  • They are market leaders– they occupy the top position in their respective industries. This is in terms of market share, capital, talent, revenues, etc. Most of them are usually so popular that they are household names.
  • They have a proven track record for growth– over time, blue-chip stocks demonstrate a capability for sustained growth. This growth comes from either entering new markets or expanding their existing market base. So even in times of economic turbulence and negative financial cycles, they have remained stable and shown that they can remain profitable.
  • They pay regular dividends– since they operate businesses that dominate a sizable market in their sectors, blue chips tend to be profitable. The best ones trickle down these profits to their shareholders in the form of dividends.
  • They are included in major market indexes– An index is a list of companies that represent a segment of a stock market. Blue-chip companies are in the major market indexes within their respective stock markets. There are 3 indexes in Kenya.

Examples of Blue-Chip Stocks in Kenya

The most common blue-chip companies in Kenya are: Safaricom, Equity Bank, KCB, Co-op Bank, and EABL.

  1. Safaricom PLC - with a market cap of about KES 1 trillion, Safaricom is the most valuable company on the Nairobi Securities Exchange. The firm provides mobile, internet, and money transfer services to over 30 million subscribers in Kenya. It has over 2,700 stores around the country.
  2. Equity Bank - Equity Group Holdings is the second most valuable company in the NSE with a market cap of over KES 170 billion (as of Nov ‘22). It was established in 1984 and serves clients in Kenya, Uganda, Tanzania, Rwanda, and the DRC. The company is also listed on the Uganda Securities Exchange.
  3. Kenya Commercial Bank (KCB) - Like Equity, KCB has regional units in Tanzania, Uganda, Ethiopia, Rwanda, Burundi, and South Sudan. It serves both individual and corporate clients through its retail banking, corporate banking, mortgage, and Treasury divisions. The company has a market cap of over KES 120 billion.
  4. East African Breweries (EABL) - this is East Africa’s leading producer and marketer of branded alcoholic beverages. It has a lineup of branded beer, spirits, and non-alcoholic drinks.
  5. Co-operative Bank of Kenya - Coop is the third largest bank in Kenya by market cap (~KES 70 billion). It was established as a cooperative in 1968 and transitioned into a bank in 1977. It is known for pioneering the agency banking model through its ‘Coop Mtaani’ agents, which helped it expand its customer base to over 7.5 million customers.

Why invest in blue-chip stocks?

Blue-chip stocks are popular with investors for two reasons: income and stability.

  • Income– since they pay dividends regularly, blue-chip stocks attract more demand because they offer passive income. The fact that they are established companies makes them even more attractive. Because they can be depended upon to keep paying for the long term.
  • Stability– blue-chip stocks are not as volatile as other stocks. They already have an established track record, which keeps them attractive even during negative market cycles. As a result, their prices do not fluctuate as much. But when they do, they tend to recover quicker than other stocks.

How do you incorporate them into your investments?

A proper, well-diversified portfolio will typically have blue-chip stocks at its core.

Not only do they keep the value of your investments stable, but they also provide an additional source of income – both very important to your investment success.

So for long-term investors, they are fundamental.

To begin, be sure to consult an investment professional and conduct your own research. Looking through the NSE 20-share index would be a good place to start. Pick any company in the top 10 and look through their records.

Then ask the important questions…

Has the company been paying dividends over the last 7-10 years? What is their market capitalization? Are they the market leader in their sector? What about its growth over the last 5 years?

Get together with a professional and answer these questions. They’ll give you a clear picture of what to buy and what not to buy.

Suggested: 5 Steps to Building a Killer Investment Portfolio

Over to you

Dividend stocks are one of the best ways to earn passive income. Blue chips offer one of the best ways to achieve that.

If you are looking for stocks that can withstand negative market pressure, then blue chip stocks are also a good place to be invested. So if you are just starting out, consider investing in them.

Any questions? Let us know in the comments.