Millions of investors follow the daily movements of the Dow Jones Industrials (DJINDICES:^DJI), gauging the venerable benchmark as a reflection on the health of the overall stock market. Yet for investors saving for retirement with a much longer time horizon in view, the Dow has been a fertile source of successful long-term stock picks, with Wal-Mart (NYSE:WMT), United Technologies (NYSE:UTX), and Boeing (NYSE:BA) having led their peers in the Dow Jones Industrials with outstanding returns over the past 40 years.
Among today's 30 component stocks in the Dow Jones Industrials, Wal-Mart leads the rest with an average annual return of 23% since 1974. Back then, the now-giant retailer had only been public for two years, and Wal-Mart had fewer than 125 stores in only eight states. Since then, Wal-Mart has obviously grown to dominate the U.S. market and have a worldwide presence in retail. Some will argue that Wal-Mart has only been in the Dow since 1997, making those returns an unfair comparison. But even over the past 17 years, Wal-Mart stock has performed strongly, with a 12% return on average topping the overall market by about five percentage points.
United Technologies, on the other hand, has a long history in the Dow, with its predecessor United Aircraft having joined the Industrials in 1939. The stock's average 40-year annual returns of 16.7% put it in the top three among the Dow's elite, but even more impressive is the transformation that United Technologies has gone through since the early 1970s. At the time, United Technologies was only starting to diversify beyond its aerospace roots, with the company going on a vast acquisition spree that included Otis Elevator and Carrier Refrigeration, two components that remain vitally important to United Technologies today. Interestingly, United Technologies has recently refocused on the aerospace industry, but it still remains a valuable conglomerate with Otis, Carrier, and other brands to help the company survive downturns in that niche.
Meanwhile, Boeing's 17.7% average annual returns since 1974 make it the runner-up in the Dow's long-term return contest. Boeing joined the Dow in 1987, but even considering that it came into the average at just about the worst possible time immediately before the 1987 stock market crash, Boeing has still managed to return an average of 11.6% annually over the past 27 years. Forty years ago, Boeing had just gone through a massive downsizing, with its commercial-aircraft unit having lost three-quarters of its employees between 1968 and 1971. Yet when the long economic doldrums of the 1970s ended, Boeing was ready to compete for the booming demand for commercial aircraft, coming out with new models and upgrading older aircraft for new uses. With its combination of military and civilian aircraft, Boeing is now capitalizing on a new wave of innovation, as it releases new models and seeks greater fuel efficiency.
Obviously, not every stock in the Dow Jones Industrials has done as well as these three have. But as a proving ground for long-term stock prospects, the Dow has been a greater source for retirement investors looking to get rich slowly but surely.
Dan Caplinger and The Motley Fool have no position in any of the stocks mentioned. 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.