The Dow Jones Industrial Average closed above 20,000 for the first time last month and continues to set new records. Although investors tend to look at the index as a single entity, it is of course composed of 30 different companies, though they all don't affect the index equally.

That's because the Dow is a price-weighted index, meaning pricier stocks in the index have a greater influence over its movements than do cheaper ones. Currently, Goldman Sachs, at more than $252 per share, has the greatest weight in the Dow, some 8.3%, while General Electric has the least, or 1%, as its stock trades at just over $30 a share.

Rising arrows on a digital stock chart.

Image source: Getty Images.

How now, Dow?

But the makeup of the Dow also changes over time, as companies are added to the index or dropped from it. The last time the components were changed was in 2015, when AT&T was removed and Apple added. Goldman Sachs, in fact, wasn't part of the Dow until 2013, when it, Nike, and Visa were put in and Alcoa, Bank of America, and Hewlett-Packard were taken out.

The components have been changed 51 times since Charles Dow created the index in 1896, but the changes aren't made lightly, and you can still find 23 companies in the DJIA today that occupied that same space a decade ago.

Unchanged Components
of the Dow Jones Industrial Average,
2007-2017

3M (NYSE:MMM)

General Electric

Microsoft (NASDAQ:MSFT)

American Express (NYSE:AXP)

Home Depot (NYSE:HD)

Pfizer (NYSE:PFE)

Boeing (NYSE:BA)

Intel (NASDAQ:INTC)

Procter & Gamble (NYSE:PG)

Caterpillar (NYSE:CAT)

IBM (NYSE:IBM)

United Technologies (NYSE:UTX)

Chevron (NYSE:CVX)

Johnson & Johnson (NYSE:JNJ)

Verizon (NYSE:VZ)

Coca-Cola (NYSE:KO)

JPMorgan Chase (NYSE:JPM)

Wal-Mart (NYSE:WMT)

DuPont (NYSE:DD)

McDonald's (NYSE: MCD)(NYSE:MCD)

Walt Disney (NYSE:DIS)

ExxonMobil (NYSE:XOM)

Merck (NYSE:MRK)

 

Ten years ago, the Dow Jones Industrial Average sat at around the 12,700 level and some might see parallels with today. Back then, the index was regularly hitting new highs and would go on to hit almost 14,000 just as the Great Recession hit, after which it would subsequently lose more than half its value.

That it's nearly tripled over the past decade speaks to the strength of the components that comprise the Dow, but which one of these nearly two dozen stocks played the biggest role in its climb?

Stock Weight % 10-Year Average Annual Return
Home Depot 4.75% 14.28%
McDonald's 4.24% 13.02%
Walt Disney 3.65% 12.95%
3M 6.07% 10.64%
Microsoft 2.15% 9.81%
Johnson & Johnson 3.95% 8.07%
IBM 6.00% 8.04%
Boeing 5.73% 8.01%
Coca-Cola 1.37% 7.94%
Intel 1.21% 7.63%
Chevron 3.66% 7.39%
JPMorgan Chase 3.00% 7.17%
United Technologies 3.72% 6.75%
Merck 2.17% 6.34%
DuPont 2.57% 6.30%
Verizon 1.63% 6.03%
Caterpillar 3.28% 5.96%
Wal-Mart 2.30% 5.69%
Procter & Gamble 3.02% 5.62%
Pfizer 1.12% 5.19%
American Express 2.65% 4.11%
ExxonMobil 2.71% 3.20%
General Electric 1.01% 0.75%

Data sources: indexArb and Morningstar. Table by author.

Looking at their total returns, the best performer was Home Depot, which generated 14.3% average annual returns for investors over the past 10 years, just ahead of McDonald's and Disney at around 13% each. That outsize performance certainly boosted the index's performance, but because of the Dow's price-weighting, which for the three of them averaged just above 4%, it probably would have muted their overall impact to a degree. 

MMM-good

So which stock came out on top? Industrial conglomerate 3M, which generated average annual returns of 10.6% and had the heaviest weighting of any of the 23 stocks at 6.07%. The combination of those two factors probably means it played a big role in the Dow index performance, and it should be remembered that this performance includes the 2008-2009 recession.

Gloved hands on a car brake and rotor.

http://www.3m.com.hk/wps/wcm/connect/db1c9bb5-2b2e-4db7-afef-1dd0b79f58fb/MovingIndustryForward_270.jpg?MOD=AJPERES&CACHEID=ROOTWORKSPACE-db1c9bb5-2b2e-4db7-afef-1dd0b79f58fb-kYXl7I6Image source: 3M.

Shares of 3M have more than doubled over the past 10 years, and in the past 12 months alone they're up 20%, but with good reason. It generates annual sales in excess of $30 billion, produces huge amounts of free cash, and is a member of the Dividend Aristocrat club, having raised its dividend for 59 consecutive years, most recently by 6% to $1.175 per share. 

While its fourth-quarter earnings were hampered by a weak performance by its healthcare and consumer divisions that typically do better, its industrial end markets were much stronger, allowing it to reaffirm its growth prospects for the coming year as well as forecast profits of $8.45 to $8.80 a share. While it would have been nice to see its consumer-facing businesses perform well now that the industrial segment is firing properly, the latter represents one-third of its total revenues and will be key to the future.

Doctors in an operating room

Image source: 3M.

Although management is always looking to calve off slower growth businesses to focus on maintaining high-single-digit revenue growth over the long term, 3M plans to invest approximately $1.8 billion in research and development this year to support its organic growth initiatives. Yet even with its uneven performance this past quarter, each segment of the business generated operating margins near 20% or above. 

If 3M is able to continue producing the kinds of numbers it has been, the industrial and consumer giant may be able to avoid the shades of the downfall that befell the Dow Jones Industrial Average 10 years ago.

Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool's Board of Directors. LinkedIn is owned by Microsoft. Rich Duprey has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Apple, Nike, Visa, and Walt Disney. The Motley Fool owns shares of ExxonMobil and General Electric and has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. The Motley Fool recommends American Express, Chevron, Coca-Cola, Home Depot, Intel, Johnson and Johnson, and Verizon Communications. The Motley Fool has a disclosure policy.