A Decade of Performance From 7 Dow Stocks

Before you go, we thought you'd like these...
Before you go close icon

The Dow Jones Industrial Average (INDEX: ^DJI) started out by tracking the leading U.S. industrial companies of the late 19th century. It has since widened its scope beyond traditional heavy industries, but it still tracks the movement of 30 large companies during daily trading sessions. A scaled average of these companies is reported throughout the trading day, and like the S&P 500, it's used to track the general health of the stock market, if not the entire U.S. economy.

As with the previousarticlesin this series, we will explore a subset drawn from the 30 companies. Today's companies were all added on two different days in the late '90s: March 17, 1997, and Nov. 1, 1999. The addition of Intel (NAS: INTC) and Microsoft (NAS: MSFT) in 1999 also marked the first time that companies not listed on the New York Stock Exchange were included in the Dow. This group is well represented in the Dow's top 10 dividend stocks as well, with three of these seven on that exclusive list.

Company

Industry

Date added to DJIA

Dividend Yield

10-Year CAGR

Hewlett-Packard (NYS: HPQ) TechnologyMarch 17, 19971.8%4.7%
Johnson & Johnson (NYS: JNJ) PharmaceuticalsMarch 17, 19973.6%3.2%
Wal-Mart (NYS: WMT) RetailMarch 17, 19972.5%2.1%
Home Depot (NYS: HD) Home ImprovementNov. 1, 19992.7%0.8%
IntelSemiconductorsNov. 1, 19993.5%0.5%
MicrosoftSoftwareNov. 1, 19993.1%0.3%
AT&T (NYS: T) TelecommunicationNov. 1, 1999*5.9%2.3%

Sources: DJIndexes.com, FinViz.com, and Yahoo! Finance.
*Reflects date of most recent addition.

First change in six years
Hewlett-Packard was added because of its explosive growth from 1991 to 1997, when it gained 372.4%. Since then has been a different story. Former CEO Mark Hurd cleaned up the company but left late last year amid sexual-harassment allegations, only to be picked up immediately by competitor Oracle. Hurd's replacement, Leo Apotheker, lasted less than a year and was recently replaced by former eBay CEO Meg Whitman. HP's current problems extend beyond the C-suite, with the Fool's own Morgan Housel placing blame on the company's board of directors. I'd be willing to bet the Dow folks would like HP to get its act together, and I could see it as a company that gets removed the next time Dow Jones decides to make a change to its eponymous average.

Like HP, Johnson & Johnson experienced rampant growth since the Dow's previous change in 1991, returning 153.7% in that six-year window. It didn't have the best quarter recently, but don't let that scare you away. It's currently one of the Dow's 10 best dividend stocks and is included as one of the "dividend aristocrats," increasing its dividend payouts for at the past 49 years. It's not the most exciting company, but its long-term potential makes it a great opportunity.

Megaretailer Wal-Mart has the highest return of this group since its inclusion. It has been No. 1 on the Fortune 500 list the past two years and in four of the past five years. Not everything it sells is made in China, and it employs more people than any other company in the United States. Its returns have been relatively flat over the past decade, but by other metrics, it compares favorably with competitors Amazon.com and Target. Throw in its potential for overseas growth, and it may finally be cheap enough to buy.

Meanwhile, 30 months later ...
Among the next group of companies to join the Dow was Home Depot, the quickly growing home-improvement retailer. From 1979 until it was added in 1999, the company had grown from three stores to 760 and today has more than 2,200. With chief competitor Lowe's closing stores to cut costs, Home Depot saw profits increase 14% in its last quarter, primarily because of improving same-store sales. When the housing market decides to rebound, Home Depot should return to what led Dow Jones to add it to its index more than a decade ago.

AT&T has been a name on the Dow for a long time, but we can trace its current origins to the addition of SBC Communications in 1999. The original American Telephone and Telegraph was added to the Dow in 1916, and it remained on the Dow until it was purchased by former "Baby Bell" SBC in 2005. SBC rebranded itself as AT&T after the purchase to capitalize on the popular name. Today, AT&T is the second largest provider of cell-phone service behind Verizon, as well as a leading provider of broadband Internet and digital television. It possesses the highest dividend on the Dow, one that looks very sustainable.

Throw in some tech giants, too
Computer-chip maker Intel joined Microsoft as the first Nasdaq stocks to be included in the Dow. It isn't hard to see why, as Intel is in a class of its own when it comes to making processing chips for various devices. In fact, most of its third-quarter earnings were from PCs, as opposed to tablets and smartphones, giving the company an opportunity to grow with these other devices. Throw in its impressive dividend, and it could be a great stock for the rest of your life.

Fellow Nasdaq compatriot Microsoft isn't nearly as glamorous as some of its tech contemporaries. Google is dominating search over Microsoft's Bing, and Microsoft has yet to find a viable competitor in the smartphone market to compete with Google's Android or Apple's iPhone. We won't even talk about the lack of a Windows-branded tablet. However, Mr. Softy could be making some moves against its chief rivals. It is in serious discussions to acquire at least a part of Yahoo! to help close the search gap with Google. In the realm of smartphones, Windows Phone 7.5 has hit the market as part of a collaboration between Microsoft and Nokia, the world's largest maker of mobile phones.

A great place to start
The folks at Dow Jones created an index that looks at what they view as 30 important stocks. A company's placement on the list does not guarantee great performance, but these seven were all added to the index for a reason. I think you can rely on these companies to provide some stable growth, if not sizable dividends.

Speaking of dividends, three of these companies were able to secure a place on our new special free report "Secure Your Future With 11 Rock-Solid Dividend Stocks." Be among the first to get this new report by signing up today.

At the time this article was published Fool contributorRobert Eberhardhas learned more than enough about the Dow and owns no shares in any company mentioned here. Follow him on Twitter, where he goes by@GuruEbby. The Motley Fool owns shares of Yahoo!, Wal-Mart, Johnson & Johnson, Google, Oracle, Microsoft, Apple, and Intel.Motley Fool newsletter serviceshave recommended buying shares of eBay, Intel, Yahoo!, Amazon.com, Wal-Mart, Johnson & Johnson, Home Depot, Google, Apple, Microsoft, and Lowe's; creating bull call spread positions on Intel, Microsoft, and Apple; creating diagonal call positions in Johnson & Johnson and Wal-Mart; and writing covered calls in Lowe's. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Read Full Story

Want more news like this?

Sign up for Finance Report by AOL and get everything from business news to personal finance tips delivered directly to your inbox daily!

Subscribe to our other newsletters

Emails may offer personalized content or ads. Learn more. You may unsubscribe any time.

From Our Partners