High-Quality Stocks Worth Considering Near Their All-Time Highs
When it comes to investing in the stock market, our instincts often tell us to steer clear of companies trading near their all-time highs. However, sometimes it’s worth paying a premium for quality rather than settling for poorly run companies just because they’re cheap. As Warren Buffett famously said, “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”
Illinois Tool Works: A Phenomenal Long-Term Investment
Illinois Tool Works (NYSE: ITW) is an excellent example of a company that has been a phenomenal long-term investment. With a diversified business divided into seven segments, ITW has achieved remarkable efficiency, with an operating margin averaging 25.1% across its segments. Its unique business model, which gives each segment significant flexibility to operate with an entrepreneurial spirit, has led to sustained revenue growth and margin expansion.
Despite its high price-to-earnings (P/E) ratio of 24, ITW’s forward P/E of 27.1 indicates that earnings are expected to decrease over the next year. However, its rock-solid dividend payment and excellent business model make it a worthwhile investment.
Lowe’s Companies: A Masterclass in Capital Returns
Lowe’s Companies (NYSE: LOW) has been an impressive investment over the past decade, increasing its dividend by 400% and reducing its share count by 42%. Its stock price has also increased more than four-fold during this period, outperforming the S&P 500.
Lowe’s has tapped into the nationwide need for home improvement products and services, coinciding with a strong housing market. Its share buybacks have helped keep its valuation reasonable, with a P/E ratio of 22.7. While the company is experiencing weak growth due to weakening consumer discretionary spending, it remains a good stock to own over the long term.
Procter & Gamble: A Recession-Proof Company
Procter & Gamble (NYSE: PG) is a textbook example of a recession-proof company. With a portfolio of elite brands, a highly efficient supply chain, and pricing power, P&G has significant advantages over its peers.
While its P/E ratio is above its historical average, its forward P/E is closer to its median levels over the past three to 10 years. Investors who don’t mind waiting for P&G’s earnings to grow into its valuation may want to consider buying the stock for its ultra-reliable dividend, which yields 2.3% at the current share price.
Investing in Quality Pays Off
These three Dividend King stocks, Illinois Tool Works, Lowe’s Companies, and Procter & Gamble, demonstrate that paying a premium for quality can lead to long-term success. While they may be trading near their all-time highs, their track records of growing earnings and passing along profits to shareholders through dividend raises make them worth considering.
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