As the markets keep breaking into new all-time highs, now may be a good time for your portfolio to become boring. In the investing world, boring businesses are often great stocks to buy, particularly when the markets reach uncharted territory. For investors still on the hunt for growth who'd also like to get a little defensive, the steady profits and dividends presented by reliable industrials can be extremely valuable. To that end, high-quality industrials including Emerson Electric (NYSE:EMR), Dover (NYSE:DOV), and Illinois Tool Works (NYSE:ITW) should be on your watch list.
When boring is actually exciting
As previously mentioned, none of these industrials are likely to get much air time in the financial media. That's because they aren't the sexy new investing idea of the day. While smaller, speculative stocks with questionable futures gain most of the attention of financial pundits, these great companies continue to do what they've done for decades. Emerson Electric, Dover, and Illinois Tool Works churn out products that, while unexciting, are critical to our infrastructure and overall economy.
Emerson Electric has enjoyed yet another year of solid growth thanks to outperformance in the emerging markets. The industrial giant grew underlying sales by 2%, and generated record operating cash flow of $3.65 billion.Those results were due to by the company's emerging-market success. Sales in its Asia segment increased 2%, more than offsetting flat revenue in the U.S. and falling sales in Europe. And Emerson's laser-like focus on cost controls also significantly boosted profits. Gross margin clocked in at 40.3%, which expanded by 30 basis points over the previous year and set a new company record.
Dover's main strategy over the past couple of years has been to grow through acquisitions, and there's ample evidence that the tactic is working. In all, Dover increased revenue by 7% over the first nine months of the year, with acquisitions accounting for 5 percentage points of that growth. Earnings per share are up a spectacular 29% through the first three quarters, and continued benefits from the company's acquisitions should boost full-year results. Management expects 7% growth in full-year sales and at least $5.57 per share in 2013 profits.
For its part, Illinois Tool Works is seeing better underlying business conditions this year as well, which prompted the company to increase its full-year earnings guidance. Illinois Tool Works is helped by the fact that it maintains a highly diversified business. Of the company's seven core segments, no one unit accounts for more than 16% of its revenue. This business diversification helps insulate the company against being vulnerable to one particular corner of the economy, and should allow for steady profits and dividend increases for many years.
Shareholder rewards aplenty
Making the investment case even better, these three industrials choose to meaningfully share their profits with investors. That's done through a combination of share repurchases, and more impressively, top-notch dividend policies.
After releasing its full-year results, Emerson Electric increased its dividend by 5%. This marked the 57th year in a row of increased dividends for Emerson Electric. Meanwhile, Illinois Tool Works increased its dividend by 10.5% and also approved a new share repurchase authorization. It will buy back up to $6 billion of its own stock with an undetermined date of completion.
Dover, meanwhile, has a nearly unmatched dividend track record. Dover increased its own shareholder payout by 7% earlier this year, marking its the 58th consecutive year of rising dividends paid. According to Dover, it holds the fourth-longest streak of dividend increases for any publicly traded company.
Count on well-run industrials for steady growth and income
Industrials are cyclical by nature, meaning their businesses are closely tied to the overall economy. When the economy takes a downturn, Emerson Electric, Dover, and Illinois Tool Works are not immune. That said, the global economic recovery remains on track, albeit at a frustratingly slow pace, which means future growth is likely. Each of these stocks kept their impressive dividend track records intact, even during the dark days of the financial crisis, and an improving economic environment means yearly dividend increases should keep coming.
If you've grown weary of nervously hanging on to every market-rattling headline, and are looking for a place to earn reasonable returns for many years, consider Emerson Electric, Dover, and Illinois Tool Works.
Bob Ciura has no position in any stocks mentioned. The Motley Fool recommends Emerson Electric Co. and Illinois Tool Works. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.