Procter & Gamble: A Long-Standing Dividend Champion
How long should a company consistently increase its annual dividends for investors to feel confident about future increases? Twenty years? Maybe thirty? Seventy years sounds extreme, but surprisingly, some companies have managed to do just that. One notable name is Procter & Gamble, whose stock price has dipped about 14% since its peak in February.
So why should Procter & Gamble be considered for your portfolio right now? Let’s dive into it.
Procter & Gamble’s Extensive Portfolio
You probably know Procter & Gamble, but do you really grasp the extent of its brand offerings? This company is behind a variety of household names like Tide, Gillette, Dawn, Crest, Pampers, and Bounty. Many of its products lead their categories, thanks to decades of consumer loyalty. In fact, it generated a staggering $84.3 billion in sales last year, with a net income of $16.1 billion.
Current Financial Snapshot
As growth has been modest, especially given the saturated nature of the consumer goods market, P&G is not just about skyrocketing revenues. Instead, investors primarily value it for its dependable dividends.
P&G has raised its dividend for an astounding 70 years in a row, highlighting its commitment to returning value to shareholders. Just recently, an annual increase of 3% was announced, which capped a decade-long trend of dividend growth averaging around 4.8% per year.
Resilience in Adversity
Now, that’s not to say the company won’t face challenges. It has reported some less-than-stellar quarterly earnings recently due to necessary price hikes, a consequence of ongoing inflationary pressures since 2022. They’ve taken measures, like cutting jobs and ramping up innovation, but some issues are just beyond their control. Rising oil prices could significantly impact revenue, possibly even by $1 billion this year.
Despite these hurdles, Procter & Gamble has an edge over its competitors, largely due to its size. This enables them to invest heavily in marketing—spending around $9.2 billion last year compared to Colgate-Palmolive’s $2.7 billion and Clorox’s mere $800 million. In an industry where repeated advertising is crucial, P&G’s vast resources give it a unique advantage.
Furthermore, retailers appreciate P&G’s diverse and high-quality product lineup. This not only makes it easier to sell but also drives traffic to their stores, increasing the likelihood that customers will purchase additional items. This visibility offers Procter & Gamble significant bargaining power with retailers.
A Reliable Choice, But Not for Everyone
Procter & Gamble isn’t really a growth stock. In fact, it has lagged behind the S&P 500 for much of the past decade, regardless of dividend reinvestments. Yet, over this time, dividends per share have increased, providing a yield that typically ranges from 2.3% to 3.2%.
Interestingly, P&G stock has historically performed better during broader market downturns. If apprehensive investors begin to seek safer investments amid market volatility, it’s very likely they will turn to Procter & Gamble.
In summary, don’t overthink it. While P&G may not be the flashiest stock, it stands out as a stable investment option, especially for those seeking income. The anticipated future dividend yield is attractive at about 3%.
