Wednesday, March 9, 2011

Procter and Gamble - The Ultimate Dividend Stock?

The recent recession hurt Procter and Gamble - earnings dropped 5% in fiscal year 2010, and it hasn't performed well in the most recent quarter either (another 7% decrease in earnings). Nonetheless, P&G can still do well as the economy regains momentum and as they focus on international growth. Combine that with its current dividend yield and dividend history, and a forward PE ratio of 14.4 and P&G appears to be one of the better dividend plays available.

Procter and Gamble is the world's largest consumer products company with a powerful line of brands - Cover Girl, Gillette, Pringles, Pampers, and Tide to name a few. Despite its dominance, this consumer goods leader has a goal of having 50% of sales come from emerging markets in 2020. As a result, the company has been investing heavily abroad - primarily in Brazil, China, and India and currently markets household and personal care items in more than 180 countries. Expect International growth to benefit P&G over the next few years, despite the possibility of a sluggish American economy.

Furthermore, P&G's current yield of 3.05% puts it at over an entire percentage point higher than that of the S&P500 average (a mere 1.85%) and even beats five-year treasury bonds. Combine that with 54 years of dividend growth, a 7.0% five-year growth rate, and a payout ratio of just over 50%, and Procter and Gamble may be worth considering adding to your income portfolio. In fact, as a dividend aristocrat, with a solid balance sheet, low debt, and a company that is committed to spending billions every year to buy back stock, PG has few rivals in the consumer goods sector as a solid, safe dividend play. To sweeten the deal further, expect another dividend increase soon.

What are your thoughts on Procter and Gamble?

Full disclosure: Long PG.

4 comments:

  1. You must be reading my mind. I have been looking at PG for the last couple weeks, and discussing it this morning. Seems like a safe 3% yield, which beats the heck out of cash, or going into bonds now.

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  2. P&G is a great company with a growing global footprint and at an attractive valuation right now. Thanks for the post!

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  3. Their culture is their "special sauce." I believe you'll see them continue this performance for the near-term. Their profitability will also come back. "Only the paranoid survive" and their culture supports this mantra. If you ever see behavior or telltails that indicate a shift in culture, that's the time to divest. (a person that has worked with them over the years as a vendor)

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  4. Anonymous,

    You bring up some great points. I'd love to hear any more insight you have on P&G.

    Thanks for reading,

    DivPartisan

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