E-commerce giant Amazon (AMZN) joined the Dow Jones Industrial Average (DJIA) on Monday, replacing Walgreens Boots Alliance (WBA).
The move reflects the evolving US economy with its focus on technology and e-commerce. However, while the Dow Jones boasts stability and resilience in downturns, it can lag in bull markets.
Notably, the S&P 500 soared 26% in 2023 while the Nasdaq soared 45%. By contrast, the Dow underperformed but still posted a respectable 16% gain.
But the Dow does have a “secret weapon.” Low-beta stocks which are by definition less volatile than the market, offering stability during turbulent times.
While you might not be interested in buying a Dow Jones ETF or index that tracks it, the additions and deletions remain a bellwether of industry trends. Need a good defensive stock that can weather any recessionary environment?
Here are the three best Dow Jones stocks investors can buy.
Best Dow Jones stock no. 1: Microsoft (MSFT)
Microsoft, a household name synonymous with software markets—and a renewed effort to pivot toward artificial intelligence, is perhaps the top contender in the Dow Jones index. It has a long history of consistent growth and profitability, operating in multiple high-growth areas, such as cloud computing, software, and gaming.
But what makes it stand out among its Dow peers?
Microsoft has transcended its traditional software roots. Its product portfolio now encompasses productivity tools (Office 365), gaming (Xbox), professional networking (LinkedIn), and more. This diversification mitigates risk by reducing reliance on any single product or market.
Microsoft boasts a remarkable track record of consistent revenue and earnings growth. And it sits on a mountain of cash reserves, boasting one of the healthiest balance sheets in the industry.
Microsoft has consistently increased its dividends, though it has not yet reached the ‘dividend aristocrat’ status. This would requires at least 25 consecutive years of dividend increases, meaning Microsoft may join the elite group by the end of the decade.
Best Dow Jones stock no. 2: UnitedHealth Group (UNH)
UnitedHealth (UNH) is a top Dow Jones stock in the defensive healthcare sector. The company is the largest health insurer in the US by revenue, giving it significant market power. It’s a relatively recession-resistant industry and comes with a 1.7% dividend yield.
With a significant stock price of $520, UnitedHealth plays a prominent role in the Dow’s performance. This is because the index is price-weighted, meaning companies with higher stock prices have more influence in the index’s performance.
Given that healthcare remains essential even during economic downturns, UnitedHealth should continue to benefit from stable demand, making it a resilient investment.
And through Optum, its health services arm, it offers pharmacy benefit management, care delivery, and data analytics. This diversification mitigates risk and creates additional revenue streams, fueling its growth engine.
Best Dow Jones stock no. 3: Visa (V)
Visa (V) is the global payments giant that operates in over 200 countries. It’s a well-known and trusted brand. The beauty of Visa is its very profitable business model with high margins.
And unlike traditional banks, Visa doesn’t hold credit risk. Instead, it acts as a facilitator, earning fees on each transaction processed. This lightweight model minimizes financial exposure and allows for high operating margins.
This translates to a staggering 3.6 billion cards in circulation, processing over $11 trillion in transactions annually. This immense reach creates a powerful network effect, attracting more users and merchants, and further solidifying Visa’s position.
While Visa has a solid history of increasing its dividend, it does not yet meet the ‘dividend aristocrat’ criteria which requires 25 years of consecutive increases. At its current pace though, investors can expect to see its inclusion as an aristocrat in 2033.
Bottom line
Being in the Dow is more about prestige than fund flows. However, its components are generally strong defensive bets on the US market. Microsoft, UnitedHealth, and Visa are the three best Dow stocks you can own today.
