With the Dow Jones Index trading at record highs above 17,000, investors may get the idea that there's not much more money to be made by investing in companies included in the Dow Jones at this stage. However, make no mistake: Companies such as Disney (NYSE:DIS), Home Depot (NYSE:HD), and Procter & Gamble (NYSE:PG) still have a lot of room to run.
The fun is not over with Disney
Like the Dow Jones, Disney is trading at all-time highs, near $86.80 per share. But that doesn't mean the ride is over for investors in Disney. Far from that. The company offers extraordinary quality and fundamental strengths, and it's a great business to hold in your portfolio for years to come.
Disney is a unique business in several ways. The company benefits from its tremendously valuable intellectual property, which sets it apart from the competition. Disney owns brands like ABC, ESPN, and Pixar, among others, and it has the rights to profit from an amazing portfolio of fictional characters from Mickey Mouse to Darth Vader, going through many of the most popular and recognizable names in the entertainment industry.
Disney is reporting blockbuster financial performance; sales during the first quarter of 2014 grew by 10% to $11.6 billion, versus $10.6 billion in the same period of 2013. All of the company's business segments reported solid growth, but the studio division was the big star of the show, with revenues jumping by an impressive 35% versus the prior year, to $1.8 billion.
The explosive success of Frozen has been a major growth driver for Disney in the studio division lately. Perhaps more important, it shows that the magic factory keeps running at full capacity. As long as the company is delivering high-quality successful content and making big profits from it, investors in Disney should simply relax and enjoy the show.
Home Depot is on firm ground
With more than 2,200 retail stores in the U.S., Canada, and Mexico, Home Depot is the largest home improvement retailer in the world. Scale advantages, geographical presence, and brand recognition differentiate this heavyweight champion from its competitors in the industry.
Home Depot benefits from superior negotiating power with suppliers, and the company gets to spread its fixed costs over huge sales volumes, which reduces fixed costs per unit. Price competitiveness is a central factor in the industry. Besides, Home Depot has built a solid relationship with contractors over the years, a key clientele in the home improvement business.
Home Depot has been an unequivocal beneficiary from the real estate recovery, and management has implemented a series of strategies to increase efficiency and streamline operations. The combination of growing sales and improving profit margin has been notoriously profitable for Home Depot and its shareholders during the last several years, and the business continues performing strongly judging by recent financial reports.
Even though Home Depot was affected by the unusually cold weather during the quarter ended on May 4, the company still delivered healthy performance during the period. Comparable sales in the U.S. increased 3.3%, and diluted earnings per share grew 20.5% versus the same quarter in the prior year. In an optimistic sign, Home Depot also increased earnings guidance for the full year, and management expects earnings per share to grow by a big 17.6% during fiscal 2014.
Procter & Gamble is solid as a rock
Procter & Gamble is a market leader in several consumer staples categories around the world. The company owns 25 brands generating more than $1 billion each in sales, in addition to 15 other growing brands generating between $0.5 billion and $1 billion each in global revenues.
The company is actively focusing on innovation and restructuring its operations in order to reinvigorate growth. Recent product innovations in categories such as laundry, baby care, and grooming are generating promising results, and management is quite optimistic regarding opportunities for growth via innovation and emerging markets expansion in the years ahead.
Procter & Gamble is increasingly paying more attention to where not to play, which can be as relevant as deciding in which markets to participate. During the last several years, the company has exited businesses representing more than $6 billion in sales, including coffee, snacks, pharmaceuticals, water purification, and bleach, among others.
Procter & Gamble's financial soundness is unquestionable, and a rock-solid trajectory of dividend payments provides further evidence. The company has paid uninterrupted dividends since its incorporation in 1890, which means 124 consecutive years of consistent dividend payments. In addition, Procter & Gamble has increased distributions during the past 58 years in a row, including a 7% increase announced in April.
The company is paying a dividend yield of 3.2%, which sounds like an attractive yield coming from a rock-solid dividend juggernaut, especially at a time when opportunities for income are quite scarce due to historically low interest rates.
The Dow Jones may be at record highs, but investing is about future, not past, performance. Don't let the headlines confuse you; high-quality Dow Jones companies like Disney, Home Depot, and Procter & Gamble still have plenty of gas left in the tank.