5 Dow Jones Stocks Every Investor Should Own

If one had to choose several stocks from the Dow Jones Industrial Average, what would be the 5 Dow Jones stocks every investor should own? Ask any investor what the safest stocks to invest in are and they are likely to tell you to go for stocks that are part of the Dow Jones Industrial Average. One of the oldest indexes on the market, the Dow Jones comprises 30 of the largest and most influential companies in the U,S, which together account for around a quarter of the total U.S stock market’s capitalization. The companies in the index have strong financials, a long history of great performance and usually pay good dividends, which is why they would make a great addition to any retirement portfolio. Because of its size and the importance of the companies included in it, the Dow Jones Industrial Average is seen as one of the main benchmarks showcasing the stability of the U.S stock market.

If an investor doesn’t have enough cash to invest in all 30 Dow components, there are several ways to approach the situation. The 30 companies included in the Dow Jones Industrial Average have different market caps and operate in different sectors, so investors can opt towards a tech-, healthcare-, or financial-focused portfolio. In addition, there are several exchange-traded funds that track the Dow Jones Industrial Average and investing in them can provide exposure to the entire index.

Then there’s a way to pick stocks from the Dow Jones by watching what the smart money does and following them. Because hedge funds have billions of dollars to invest, they invest in dozens, hundreds, or even thousands of stocks, but sometimes a significant percentage of their assets is allocated to companies from the Dow Jones, because they provide low exposure to risk and generate returns that are solid enough for long-term gains. At Insider Monkey, we look at the equity portfolios of over 650 hedge funds and analyze their collective sentiment towards thousands of companies. We use this data to select stocks for our investing strategy and it has worked pretty well so far, as it is up by more than 45% since February 2016. The stock picks that are part of our flagship strategy are shared with our premium subscribers.

Among the funds that we track, stocks that are part of the Dow Jones Industrial Average enjoy strong bullish sentiment, though they are not as popular as some other companies. This is probably because hedge funds usually seek to outperform the market and stocks that are part of the index are not the best way to achieve this. Nevertheless, if we look at the five most popular Dow Jones companies among the investors in our database, we can see that four of them are among the top 10 (see the list of the 10 most popular stocks among hedge funds).

With this in mind, let’s take a closer look at the 5 Dow Jones stocks every investor should own, beginning on the next page.

After checking out the list, don’t miss out on Five Dow Jones Stocks that Can Outperform the Market.

5. Pfizer Inc. (NYSE:PFE)

On the fifth spot we have Pfizer Inc. (NYSE:PFE), in which 72 funds from our database held long positions at the end of the first quarter, down by ten over the quarter. Pfizer registered a significant decline in popularity last year, as there were 119 funds long the stock at the end of March 2016. However, Pfizer’s cancelled merger with Allergan plc (NYSE:AGN) took most of the catalysts that investors had been looking for off the table. Pfizer Inc. (NYSE:PFE)’s stock has gained over 4% since the beginning of the year and it currently sports a dividend yield of 3.80%.

For the last two quarters, Pfizer has reported year-over-year declines in revenue, which was also lower than expected in both cases. The declines in sales were particularly notable because Pfizer Inc. (NYSE:PFE) is about to lose the exclusivity on two of its best-selling drugs, Viagra (this year) and Lyrica (next year). However, Pfizer is trying to develop new products and has a bunch of promising drugs in Phase III studies, including drugs for non-small cell lung cancer. In addition, the high dividend yield and attractive valuation at 13-times forward earnings makes Pfizer Inc. (NYSE:PFE) a worthy portfolio addition.

4. JPMorgan Chase & Co. (NYSE:JPM)

Among the funds we track, JPMorgan Chase & Co. (NYSE:JPM) is the second-most popular banking stock and the most popular financial stock from the Dow Jones Industrial Average. During the first three months of 2017, the number of funds bullish on the stock declined by nine to 101.

Similar to its industry peers, JPMorgan Chase & Co. (NYSE:JPM)’s stock has rallied by 32% since Donald Trump won the presidential election last November, as investors grew excited over the promise of looser regulations in the sector and lower tax rates for businesses. In addition, the bank was recently OK’d by the Federal Reserve to boost its shareholder returns. Following the results of the Comprehensive Capital Analysis and Review (CCAR), JPMorgan Chase & Co. (NYSE:JPM) announced that it would raise its dividend by 12% to $0.56, which is the highest dividend among the Big Four banks. In addition, the board authorized a $19.40 billion buyback program, also the highest among its large peers.

3. Visa Inc (NYSE:V)

At the end of the first quarter, there were 110 funds in our database long Visa Inc (NYSE:V), down by one over the quarter. The company’s stock has advanced by 20% year-to-date, but its dividend yield of 0.71% is the lowest among the five stocks discussed in this article. Visa Inc (NYSE:V) is a global leader in payment processing and enjoys a strong network effect. In addition, as retail is transitioning to online from offline, Visa is set to benefit even more.

According to the company’s investor day presentation on June 22, for every dollar spent in physical transactions, $0.15 is charged on a Visa card, but when it comes to online, this share increases to $0.43 (both figures exclude China). The company also pointed out the strong growth trends in both physical and digital spending; offline spending is set to grow at a compound annual growth rate of 4% until 2020, while online spending is estimated to grow at 20% CAGR. In conclusion, because of the current trends and Visa Inc (NYSE:V)’s size and global presence, the company is likely to continue to deliver strong growth, making it a worthy addition to our list of 5 Dow Jones stocks every investor should own.

2. Apple Inc. (NASDAQ:AAPL)

On the second spot we have Apple Inc. (NASDAQ:AAPL), in which 113 investors held stakes heading into the second quarter of 2017, compared to 126 funds three months earlier. The iPhone maker is the latest addition to the Dow Jones Industrial Average, having replaced AT&T in March 2015. Last month, Apple posted a surprise fall in iPhone sales, as it sold 50.8 million units in its fiscal 2017 second quarter ended April 1, compared to 51.2 million units a year earlier. The company also registered two consecutive quarters of declining iPhone sales last year, which resulted in its first annual sales drop since 2001.

Apple Inc. (NASDAQ:AAPL) said lower sales were due to anticipation for the new iPhone expected later this year, but some analysts expressed concerns over the tech giant’s position in China, where local manufacturers have been releasing premium smartphones at much lower prices. To address the issue, Apple Inc. (NASDAQ:AAPL) has been trying to tap into some emerging markets, particularly India. Tim Cook, Apple’s CEO, traveled to India last year and recently met with Indian prime minister Narendra Modi during his visit to the U.S. Apple Inc. (NASDAQ:AAPL) plans to establish a factory to assemble iPhones in India and expects that it will be allowed to open retail locations in the country as well.

1. Microsoft Corporation (NASDAQ:MSFT)

The number of investors long Microsoft Corporation (NASDAQ:MSFT) inched down by five to 121 during the first three months of 2017. The tech giant has a solid record of paying dividends, having raised them consistently in the past decade. It currently pays $0.39 per share, which is almost four-times higher than the $0.10 it paid back in 2007.

Microsoft Corporation (NASDAQ:MSFT) has delivered strong results, but it still has more potential to grow, mainly due to its cloud business, which is currently one of the market leaders, trailing only Amazon.com, Inc. (NASDAQ:AMZN)’s AWS. For the third quarter of its fiscal 2017, Azure, one of Microsoft’s cloud packages that offers services to businesses, registered revenue growth of 93%. Alongside the strong market position of Microsoft’s Office 365 productivity software and the overall expected growth of the Software-as-a-Service market, Microsoft Corporation (NASDAQ:MSFT) is positioned for future growth. In addition, the company is committed to returning capital to shareholders, since, aside from dividends, it also recently authorized a $40 billion buyback program.

All of these factors explain why Microsoft Corporation (NASDAQ:MSFT) is the fifth-most popular stock among the funds in our database and why it tops our list of 5 Dow Jones stocks every investor should own.

Disclosure: None