Blue Chip Dividend Stocks in the Dow Jones: A Closer Look at Top Performers

These 3 Blue Chip Dividend Stocks Make Up 24% of the Dow Jones Industrial Average. Here's My Top Pick. | The Motley Fool

Microsoft is the most valuable company in the world and shows no signs of slowing down. Created in 1896, the Dow Jones Industrial Average is one of the best-known U.S. indexes. It is price-weighted, meaning its 30 components are weighted based on their stock prices rather than their market caps. This means that stock splits can have a major impact on the Dow. Microsoft (MSFT -0.25%), UnitedHealth Group (NYSE: UNH), and Goldman Sachs Group (NYSE: GS) are the three largest Dow components and all trade at over $460 a share. Together, they make up roughly 24% of the Dow, whereas the average component holds a mere 3.3% weighting. All three companies operate in vastly different industries but pay stable and growing dividends. Here's why Microsoft is my favorite pick out of the three. The simplest reason to buy and hold Microsoft is its exposure to trends and its leadership across industries. The company is a top player in cloud infrastructure, software and hardware for commercial customers and individual consumers, developer tools, enterprise software, and more. Microsoft has done a masterful job monetizing artificial intelligence (AI) across its business. The company's generative AI tool, Copilot, probably has been the biggest update in the history of its Office 365 suite of software. Azure AI helps developers build intelligent cloud-native applications on the Azure platform. While other companies believe AI will help them accelerate growth in the future, Microsoft is already seeing significant profitability improvements across its business. It is a proven winner in AI, which is why it deserves a higher valuation than its historical average. Since operating income is growing even faster than revenue, Microsoft's margins are hovering around 10-year highs, while sales have roughly doubled in the last five years. If it sustains impressive growth, it could help the company reach a $10 trillion market cap by 2035. Industry-leading companies that can continue to grow can be great investments. But the tech sector is chock-full of great businesses that either no longer exist, were bought out on the cheap, or are a shell of what they used to be. That's why companies must invest in research and development and continue innovating. When I look at the mega-cap tech companies, Microsoft stands out as offering the best balance between stability and innovation. For example, Alphabet (GOOGL -0.27%) (GOOG -0.28%) is a significantly less expensive stock than Microsoft, but its business model is more fragile. Google Cloud is a distant third behind Amazon Web Services and Microsoft Azure. YouTube is a powerhouse, but ChatGPT, TikTok, and Meta Platforms' Instagram are challenging Google's impenetrable moat in search. So while Alphabet is cheaper today, slower earnings growth could make it more expensive than Microsoft in the long run. In sum, being more cautious when calling a company a surefire bet in tech is important. For stodgy companies like Coca-Cola or PepsiCo, the name of the game is to sustain quality brands, develop a pipeline of new products, and make savvy acquisitions. But tech companies have to manage capital well and innovate. BlackBerry lost to Apple because it failed to pivot away from buttons to the touch screen. AOL faded into history when broadband replaced dial-up internet. The list goes on and on. Microsoft not only has the diversification needed to take a market share hit in one of its business units, but it is also a proven innovator and excellent capital allocator that has been on the right side of the AI-led movement in tech. Microsoft has raised its dividend every year since fiscal 2011. At the time, it paid a $0.16 per share quarterly dividend. Today, the dividend is $0.75 per share -- a nearly fivefold increase in just 14 years. Microsoft's decision to consistently raise its dividend is a testament to its confidence that it can continue to grow earnings. With over $21 billion in trailing-12-month dividend expenses, it pays more dividends than any other U.S.-based company (by far). And that's not all: Microsoft also buys back a ton of its own stock. Over the last 12 months, it has repurchased $16.8 billion of its stock compared to $10.5 billion in stock-based compensation. Due to its size and the tech industry's habit of rewarding employees with stock, Microsoft has to buy back at least as much stock as it pays in stock-based compensation to avoid diluting existing shareholders. It has been no easy challenge, as the company's stock-based compensation expense has doubled over the last five years. Overall, Microsoft has committed to its capital return program by making annual (and significant) dividend raises while avoiding increasing its share count. The payout only yields 0.6%, but that's because the stock has posted massive outsize gains. The dividend is up 477% over the last 15 years, but the stock is up 1,870%. For the dividend yield to increase, the dividend has to grow faster than the stock price. Microsoft's last five dividend raises were all around 10%. So if the stock cools off, we could see the yield increase. Either way, Microsoft is an underrated dividend stock heavily committed to returning capital to shareholders. Microsoft is arguably the best company in the world due to its current position, high-margin growth trajectory, and ability to fund a sizable dividend and stock-buyback programs with cash. The most glaring issue with the stock is its 40.3 price-to-earnings (P/E) ratio compared to a 10-year median P/E of 30.6. However, Microsoft is a much better business now than in the past, especially given the growth of cloud infrastructure and the AI improvements across proven products. In this regard, Microsoft's valuation is more reasonable than it appears at first glance. The company will have to maintain an impressive growth rate to keep this high multiple, but it has what it takes. Investors interested in quality companies, even at a premium price, should consider Microsoft now.

These 3 Blue Chip Dividend Stocks Make Up 24% of the Dow Jones Industrial Average. Here's My Top Pick.

Created in 1896, the Dow Jones Industrial Average is one of the best-known U.S. indexes. It is price-weighted, meaning its 30 components are weighted based on their stock prices rather than their market caps. This means that stock splits can have a major impact on the Dow. Microsoft (NASDAQ: MSFT), UnitedHealth Group (NYSE: UNH), and Goldman Sachs Group (NYSE: GS) are the three largest Dow components and all trade at over $460 a share. Together, they make up roughly 24% of the Dow, whereas the average component holds a mere 3.3% weighting. All three companies operate in vastly different industries but pay stable and growing dividends. Here's why Microsoft is my favorite pick out of the three. The simplest reason to buy and hold Microsoft is its exposure to trends and its leadership across industries. The company is a top player in cloud infrastructure, software and hardware for commercial customers and individual consumers, developer tools, enterprise software, and more. Microsoft has done a masterful job monetizing artificial intelligence (AI) across its business. The company's generative AI tool, Copilot, probably has been the biggest update in the history of its Office 365 suite of software. Azure AI helps developers build intelligent cloud-native applications on the Azure platform. While other companies believe AI will help them accelerate growth in the future, Microsoft is already seeing significant profitability improvements across its business. It is a proven winner in AI, which is why it deserves a higher valuation than its historical average. MSFT revenue (TTM) data by YCharts; TTM = trailing 12 months. Since operating income is growing even faster than revenue, Microsoft's margins are hovering around 10-year highs, while sales have roughly doubled in the last five years. If it sustains impressive growth, it could help the company reach a $10 trillion market cap by 2035. Maintaining industry leadership Industry-leading companies that can continue to grow can be great investments. But the tech sector is chock-full of great businesses that either no longer exist, were bought out on the cheap, or are a shell of what they used to be. That's why companies must invest in research and development and continue innovating. When I look at the mega-cap tech companies, Microsoft stands out as offering the best balance between stability and innovation. For example, Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) is a significantly less expensive stock than Microsoft, but its business model is more fragile. Google Cloud is a distant third behind Amazon Web Services and Microsoft Azure. YouTube is a powerhouse, but ChatGPT, TikTok, and Meta Platforms' Instagram are challenging Google's impenetrable moat in search. So while Alphabet is cheaper today, slower earnings growth could make it more expensive than Microsoft in the long run. In sum, being more cautious when calling a company a surefire bet in tech is important. For stodgy companies like Coca-Cola or PepsiCo, the name of the game is to sustain quality brands, develop a pipeline of new products, and make savvy acquisitions. But tech companies have to manage capital well and innovate. BlackBerry lost to Apple because it failed to pivot away from buttons to the touch screen. AOL faded into history when broadband replaced dial-up internet. The list goes on and on. Microsoft not only has the diversification needed to take a market share hit in one of its business units, but it is also a proven innovator and excellent capital allocator that has been on the right side of the AI-led movement in tech. Its massive capital return program Microsoft has raised its dividend every year since fiscal 2011. At the time, it paid a $0.16 per share quarterly dividend. Today, the dividend is $0.75 per share -- a nearly fivefold increase in just 14 years. Microsoft's decision to consistently raise its dividend is a testament to its confidence that it can continue to grow earnings. With over $21 billion in trailing-12-month dividend expenses, it pays more dividends than any other U.S.-based company (by far). And that's not all: Microsoft also buys back a ton of its own stock. Over the last 12 months, it has repurchased $16.8 billion of its stock compared to $10.5 billion in stock-based compensation. Due to its size and the tech industry's habit of rewarding employees with stock, Microsoft has to buy back at least as much stock as it pays in stock-based compensation to avoid diluting existing shareholders. It has been no easy challenge, as the company's stock-based compensation expense has doubled over the last five years. MSFT stock buybacks (TTM) data by YCharts. Overall, Microsoft has committed to its capital return program by making annual (and significant) dividend raises while avoiding increasing its share count. The payout only yields 0.6%, but that's because the stock has posted massive outsize gains. The dividend is up 477% over the last 15 years, but the stock is up 1,870%. For the dividend yield to increase, the dividend has to grow faster than the stock price. Microsoft's last five dividend raises were all around 10%. So if the stock cools off, we could see the yield increase. Either way, Microsoft is an underrated dividend stock heavily committed to returning capital to shareholders. It deserves a premium valuation Microsoft is arguably the best company in the world due to its current position, high-margin growth trajectory, and ability to fund a sizable dividend and stock-buyback programs with cash. The most glaring issue with the stock is its 40.3 price-to-earnings (P/E) ratio compared to a 10-year median P/E of 30.6. However, Microsoft is a much better business now than in the past, especially given the growth of cloud infrastructure and the AI improvements across proven products. In this regard, Microsoft's valuation is more reasonable than it appears at first glance. The company will have to maintain an impressive growth rate to keep this high multiple, but it has what it takes. Investors interested in quality companies, even at a premium price, should consider Microsoft now. The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now... and Microsoft wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $791,929!* Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Daniel Foelber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Goldman Sachs Group, Meta Platforms, and Microsoft. The Motley Fool recommends UnitedHealth Group and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy. The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.