The Top 10 Dow Stocks of 2011

It's been a wild year in the markets. After an initial surge of optimism, stocks plummeted throughout the summer as Standard & Poor's downgraded the United States amid a debt-ceiling standoff.

At its low point in early October, the Dow Jones (INDEX: ^DJI  ) stood 10% in the red for the year.

However, as the year closes, optimism has returned. After rallying throughout the latter half of October and overcoming a late November plunge, the Dow has returned 6.4% for the year, significantly outpacing other indexes like the growth-heavy Nasdaq.

I suppose it'd be fitting to call the rally the revenge of the blue chips. For years, many of the best brands had wandered in the stock-performance wilderness with middling P/E ratios while growth stocks continued seeing outsized gains. Finally, in 2011 we saw some outperformance from the stodgy old guard of corporate America.

Following are the top 10 performers in the Dow this year, with some analysis on what drove the results on many of the winners.

Company

Return (Year to Date)

McDonald's (NYSE: MCD  ) 28.5
IBM (NYSE: IBM  ) 24.0
Pfizer 23.5
Home Depot 19.6
Kraft Foods 18.4
Chevron (NYSE: CVX  ) 16.5
ExxonMobil (NYSE: XOM  ) 15.3
Intel (Nasdaq: INTC  ) 14.2
Boeing (NYSE: BA  ) 13.8
American Express 11.0

Source: S&P Capital IQ. Returns are not adjusted for dividends.

McDonald's: The American fast-food icon heads up the list after another heady year of growth in 2011. McDonalds is growing on two fronts: execution within existing stores and growth into new markets. The company reported enviable 7.4% comparable-store sales growth in November and is also planning on opening more than 1,000 new locations, with most coming to the Asia-Pacific, Middle East, and Africa. This has led to high-growth rates throughout the year, with last quarter seeing a 13.7% sales jump from the prior year.

IBM: In mid-2010, IBM set an ambitious target to double profits by 2015 and looks well on its way a year and a half into that bold journey. However, hitting lofty financial targets is just part of IBM's 2011 success story; the other part is continuing validation of its strategy. Not only have other key competitors such as Hewlett-Packard declared an intention to become more IBM-like, but Warren Buffett himself also invested in the company this year. That's a couple of powerful acknowledgements of the enormous advantages IBM has in the data center and the growth prospects of its software and services divisions.

Chevron and ExxonMobil: After strong gains in oil prices at the start of the year as the Arab Spring and chaos in Libya led to fears of supply disruptions, the summer saw oil prices steadily retreat as broader fears of a slowing global economy won out. As the year closes, oil is once again in a multi-month rally, leaving oil prices well above where they opened the year. Not surprisingly, the charts of both Exxon and Chevron closely mirror the movements of oil itself, with Exxon having rallied a market-thumping 15% in the past month amid rising oil prices. As the coming year starts, continuing fears that China's growth could be slowing and the unresolved economic strife in Europe means that 2012 should once again be a volatile year for the oil majors.

Intel: With investors' attention latched onto smartphones and tablets, it might be surprising that Intel finds a place on the Dow outperformers list. After all, the company hasn't managed to make any inroads into mobile devices. However, investors with a U.S.-centric focus might be missing some key trends around the world. Here's what Intel CEO Paul Otellini had to say on the company's recent conference call:

While consumer demand in mature markets like Western Europe and North America remain soft, Enterprise PC demand remained strong and consumer demand in emerging markets continued to rise year over year. China was up 12%, India 21%, Turkey 14% and Indonesia 23%. The global PC landscape is being reshaped. Emerging markets now represent 2 of the top 3 consumption PC markets in the world. China is now the No. 1 PC consumption market in the world while Brazil has become No. 3.

Boeing: After years of frustration with program delays and defense cuts, Boeing broke out in 2011. The year started with the company winning $30 billion KC-76 refueling tankers contract. Then the company managed to get the 787 airborne and delivered to launch partner All-Nippon airways. Finally, it continues announcing a series of record-shattering contracts as its 737 backlog grows -- and Boeing continues plans to ramp its production.

All in all, it was a solid year for the Dow. However, it's even more impressive when you realize that the performances we've looked at aren't adjusted for dividends. Just look at IBM, a tech stalwart not often associated with its 1.7% yield. Since the late 1960s, its shares have jumped about 1,000%. However, when factoring in dividends, its total yield jumps to more than 3,100%!

Dividends have a transformative impact on portfolios over longtime periods. That why The Motley Fool recently compiled its latest special free report on dividends where you can learn about 11 stocks that should give you what you want. But don't wait -- get your free copy while you can.

Eric Bleeker owns shares of no companies listed above. The Motley Fool owns shares of IBM and Intel and has bought calls on Intel. Motley Fool newsletter services have recommended buying shares of Chevron, McDonald's, Intel, Home Depot, and Pfizer, creating a write covered strangle position in American Express, and creating a bull call spread position in Intel. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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