The 30 components of the Dow Jones Industrial Average (DJIA) tend to be industry-leading companies that are meant to provide a representation of the broader economy. And although the S&P 500 and Nasdaq Composite are generally preferred benchmarks over the DJIA since they are market-cap weighted and include more companies, the DJIA remains a reliable source of inspiration for building a stock market starter kit. It can also be a good place to turn to for buys during a bear market.
Honeywell (HON -1.08%), Intel (INTC 1.74%), and Chevron (CVX -0.86%) stand out as three reliable Dow stocks to buy in October and hold for decades. Investing in equal parts of each company produces a dividend yield of 3.6%. Here's what makes each dividend stock a great buy now.
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The industrial conglomerate that invests like a growth company
Lee Samaha (Honeywell International): Dow Jones stocks are known for being mature blue chip companies. Honeywell certainly fits that bill, but it's also a company categorized by ongoing investment in growth industries. As such, the case for buying the stock and holding it for decades is based on the idea that there is plenty of growth in its pipeline.
Indeed, management certainly thinks so because it upgraded its expectation for long-term organic growth to 4%-7% a year from a previous estimate of 3%-5% during its investor conference in March. In addition, Honeywell's management also upgraded its estimate for segment margin expansion from 30 basis points-50 basis points a year (where 100 basis equal 1%) to 40 basis points-60 basis points a year.
The improved growth expectations reflect management's ongoing development of its software business, Honeywell Connected Enterprise. Not only does increasing software content raise Honeywell's margin profile, but it also adds value to Honeywell's equipment. For example, its Honeywell Forge (enterprise performance management software) can gather mass data on building performance to improve efficiency and reduce energy consumption -- something that adds value to Honeywell's building technology solutions.
Alongside its software development, Honeywell also has a collection of so-called "breakthrough initiatives" that include investments in quantum computing, avionics and propulsion systems for air taxis, unmanned cargo drones, and last-mile delivery drones. Meanwhile, its Sustainable Technology Solutions business is developing renewable fuels, carbon capture solutions, plastics recycling technology, and green hydrogen technology.
It all adds up to a company teaming with growth potential, and investors can buy and hold the stock while they wait for the company to realize its growth ambitions.
Intel is a tempting turnaround play
Daniel Foelber (Intel): Intel stock is hovering around its 52-week low and is trading at roughly the lowest price in eight years. Interestingly enough, Intel has also raised its dividend for eight consecutive years, which has coincided with its underperforming stock.
The result is that Intel's dividend yield is hovering around an all-time high -- currently at 5.2%. A good proxy for valuation is looking at the dividend yield over time. Historically speaking, Intel's dividend yield has rarely been above 3%.
INTC Dividend Yield data by YCharts
Intel stock is cheap no matter how you look at it -- through its dividend yield, its price-to-earnings ratio of just 5.9, you name it. The issue is that Intel, in many ways, deserves to be a cheap stock. The company has been mismanaged for years and has lost market share to its competitors. Although Intel is scrambling to catch up, it still holds a sizable position in the market. Its influence, paired with its high dividend yield and low valuation, makes it an ideal candidate for a turnaround play.
Investors interested in Intel are betting it will be able to turn its business around. And those apprehensive about Intel stock may be waiting for concrete signs of a turnaround before hitting the buy button. Nothing in the stock market is free. And when a company is down as bad as Intel, it's usually for a good reason.
However, Intel's valuation implies stagnating to low growth. With hopes low and doubts high, investors are getting a good price for Intel. The 5.2% dividend yield provides a powerful passive income stream while investors give the turnaround a chance to take form.
Given the vulnerability of the chip industry to the broader economy, paired with Intel having to play catch-up to its peers, it's worth understanding that it could take several years for Intel's turnaround to truly take form -- underscoring the importance of maintaining a long-term horizon when it comes to investing in Intel stock.
Chevron can power your portfolio with passive income for years and years
Scott Levine (Chevron): Carving out time to shop for stocks instead of Halloween candy and decorations? That's a smart move. With the recent volatility rattling the markets, some keen buying opportunities have presented themselves -- chances to pick up high-quality stocks such as Chevron that can boost your passive income for decades.
Before we look at the decades ahead, it's worth taking a quick view in the rearview mirror. Raising its dividend for the past 36 consecutive years, Chevron has earned a place among the noble class of stocks known as Dividend Aristocrats. Even more noteworthy is the fact that Chevron is one of only two energy stocks (the other being ExxonMobil) that have achieved this noble rank. This prior performance doesn't guarantee that the company will retain its place among these dividend all-stars. Still, it's certainly an encouraging sign that Chevron is able to maintain its dedication to shareholders during periods of volatility in energy markets.
Offering investors a 3.6% forward yield, Chevron's stock is one of the most compelling choices found in the energy sector. The company has a strong presence throughout the value chain, operating an extensive portfolio of upstream, midstream, and downstream assets. And it's not as if these assets aren't producing strong returns. According to a recent investor presentation, Chevron forecasts growing cash flow from operations at a compound annual growth rate of more than 10% (excluding working capital) through 2026 provided that the price of Brent crude oil is $60 per barrel.
