escalating by 4%, 10%, and a considerable 25% over a three-month period, these three Dow Jones Dividend Growth Stocks are considered worthwhile investments in December.
Unlike the S&P 500 or the growth-driven Nasdaq Composite, the Dow Jones Industrial Average has a more value-oriented focus. However, in recent years, it's shifted towards growth with the inclusion of companies like Salesforce, Amazon, and Nvidia.
At present, Microsoft (MSFT 1.14%), Visa (V 0.16%), and Walt Disney (DIS 0.31%) are performing well in the Dow, with Microsoft up 4%, Visa up 10%, and Disney climbing an impressive 25% in the past three months. Here's why these blue-chip companies are primed for growth and dividend payments for years to come.
Microsoft combines growth and passive income at a reasonable price
2023 was a significant year for Microsoft, with its stock soaring 56.8% due to advancements in artificial intelligence (AI). The company played a role in OpenAI, expanded Microsoft Copilot, and improved AI for Microsoft Cloud and GitHub.
The stock rose another 18.9% in 2024, but its performance lagged behind the S&P 500's year-to-date gain. In November, Microsoft experienced its worst day in two years due to increased spending on AI and lower near-term profit margins. However, wallowing in underperformance might present a buying opportunity for investors confident that Microsoft will keep monetizing AI and momentum its growth.
Proposed changes to its contract structure with OpenAI might unlock advanced technologies, eliminate investor profit caps, and grant Microsoft more control.
Microsoft is playing the long game with its AI investments, so investors should expect volatility in terms of how Wall Street views its quarterly performance. With wide exposure to various end markets and a solid balance sheet featuring more cash, cash equivalents, and marketable securities than debt, the stock remains a balanced buy.
Microsoft is an undervalued dividend stock, with a 15-year record of increasing its payout at a 13.2% compound annual growth rate. The low yield should be attributed to its outperforming stock price, not a lack of commitment to dividends.
Microsoft boasts a forward price-to-earnings ratio (P/E) of 34.4, which is reasonable considering its record-high sales and highest operating margin in over a decade. The stock's growth might accelerate further if Microsoft makes additional breakthroughs in AI.
Considering all these factors, Microsoft stands out as an arguably the most balanced mega-cap tech stock worth investing in December.
Visa maintains its value with consistent stock repurchases
Visa's diluted earnings per share (EPS) have increased by 99% in the last five years, with sales growing by 64.5%. The company's exceptional growth and consistency are highlighted by its 20-year chart of key metrics.
Visa has led the shift from cash to digital payment processing, serving as the backbone of e-commerce and in-person point of sale. The company has grown into an international business, handling currency conversion and transactions for customers while traveling.
Network effects are essential to its unstoppable business model. The network relies on customers using Visa debit and credit cards and merchants accepting these forms of payment. As the network grows in size, it gains recognition and trust, prompting customers to use the cards more frequently and merchants to accept the transaction fees to boost their sales.
Microsoft and Visa share similarities in their performances, with both stocks hovering around all-time highs but still representing reasonable valuations -- with a forward P/E of 28.1 and 21.1, respectively. Visa has upheld its dividend payout annually since 2009 and primarily uses stock repurchases to return capital to shareholders, keeping its valuation in check.
Visa is considered an almost perfect business model, making it a quality company for investors to buy in December.
Disney is a well-oiled media machine
Following the issuance of a 33% dividend hike to $1 per share per year, Disney's stock continues to yield low returns (under 1%). However, this dividend increase reflects the improved strength of the business.
The pandemic's impact on its parks and movie business was severe, while its Disney+ service added to expenses and losses since it was unprofitable until this year.
As shown in the chart, despite achieving all-time high sales, Disney's operating margins and diluted EPS are significantly below their pre-pandemic levels.
Management is anticipating higher earnings growth over the next three years, fueled by a consistently profitable streaming segment, box office hits, a strong cruise line and parks business, and more.
Disney was gaining traction pre-pandemic, with commercial successes from its Star Wars and Marvel franchises. While it hasn't regained its former glory yet, there are signs that the company is regaining its footing.
The allure of investing in Disney+ for December and beyond stems from its potential for even greater success. If Disney manages to transform it into a profit-rich streaming service, it will exploit its intellectual property more intensely than ever before.
Couple this with an expanding fleet of cruise ships and park expansions, all financed by a whopping $60 billion budget, and you're looking at a promising shift from a traditional media company reliant on cable networks to a contemporary entertainment powerhouse tailored for the digital realm.
With a 20.9 forward P/E ratio, Disney emerges as an attractive bargain and a stock that's worthy of immediate purchase.
Investors might see potential in Microsoft's continued investments in AI, as its future growth could outpace current market performance, making it a worthy addition to one's portfolio in terms of both growth and dividends.
Visa's consistent stock repurchases, coupled with its international business expansion and network effects, contribute to its maintained value, making it an attractive option for investors seeking a balanced buy in December.
