Hewlett-Packard Company (HPQ), Travelers Companies Inc (TRV), Caterpillar Inc. (CAT), Alcoa Inc (AA): 5 Keys to the Dow’s Record Quarter

4. Dividends continue to drive the Dow.
In a low-interest-rate environment, investors continue to look for income from their stock investments, and the Dow continues to pay rising dividends. The Dow’s overall dividend yield has fallen slightly since this time last year, but with the Dow up more than 10% since March 2012, even a slight drop in yield doesn’t come close to offsetting the increase in total payouts among Dow-component companies.

Some of the increases this quarter have continued to be strong. Both The Coca-Cola Company and HP managed to push dividends higher by 10%, keeping pace with the Dow’s overall rise. With many more companies expected to boost payouts in the near future, dividends will continue to be a driving force for further Dow advances.

5. Valuations on the Dow are reasonable.
Given the gains in the Dow, it’s natural to be concerned about valuation. But with strong earnings performance, market multiples remain reasonable, with the Dow trading at about 16 times trailing earnings and less than 13 times forward earnings. Those figures are in line with the broader market as well.

The big question is whether earnings growth can continue. High profit margins have bolstered earnings in ways that some see as unsustainable, but without an imminent threat of reverting to more typical levels, a pullback doesn’t necessarily have to come soon.

Enjoy the record!
The four-year bull market has made many investors happy, and with the Dow’s record-setting quarter, the good times are clearly here. How long they’ll stay is uncertain, but making the most of them while they last will be an essential part of a successful investing strategy.

The article 5 Keys to the Dow’s Record Quarter originally appeared on Fool.com.

Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter” @DanCaplinger. The Motley Fool has no position in any of the stocks mentioned.

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