Procter & Gamble (PG) raises dividend by 3% and remains a Top 100 stock

Procter & Gamble’s (NYSE:PG) dividend was increased by 3%.  Its overall yield is 3.05%. The firm started paying a dividend in 1990.

Procter & Gamble is one of the largest consumer packaged goods firms in the world. It operates throughout North America, Europe, Latin America, Asia, India, and other emerging market countries. Its major brands include Gillette, Oral-B, Crest, Vicks, Tide, Downy, Downy, Cascade, and Swiffer. The global firm was founded in 1837 and is based in Cincinnati, Ohio.

Procter & Gamble has maintained a three-year growth rate of dividends of 3.8 percent. Procter & Gamble currently ranks 1st in dividend yield within the large cap consumer goods, personal products category. The quarterly dividend for the May payment will be $0.6896 versus the prior year rate of $0.6695 per share. Procter & Gamble is a member  of our Top 100 Dividend Stocks.  (see below).

top-100

The Procter & Gamble Company is currently priced at $86.45. Listed in the table below are the quarterly dividend payments since 2010.

Date Quarterly Dividend
4/21/2017 0.6896
1/18/2017 0.67
10/19/2016 0.67
7/20/2016 0.67
4/14/2016 0.67
1/20/2016 0.663
10/21/2015 0.663
7/22/2015 0.663
4/23/2015 0.663
1/21/2015 0.644
10/22/2014 0.644
7/16/2014 0.644
4/23/2014 0.644
1/22/2014 0.602
10/16/2013 0.602
7/17/2013 0.602
4/24/2013 0.602
1/16/2013 0.562
10/17/2012 0.562
7/18/2012 0.562
4/25/2012 0.562
1/18/2012 0.525
10/19/2011 0.525
7/20/2011 0.525
4/27/2011 0.525
1/19/2011 0.482
10/20/2010 0.482
7/21/2010 0.482
4/28/2010 0.482
1/20/2010 0.44

Analysis of Procter & Gamble is based upon our five key criteria for the Top 100 list, which include;

Category Value Score
Dividend Yield 3.19% 178
Dividend Growth (3-7 year avg) 5% 329
Forward P/E 23.1 405
S&P Financial Rating AA- 217
Beta 0.70 20
Total Score 1,149
% Yield 3 Year Div. Growth Rate 7 Year Div. Growth Rate SPS 2017 P/S Ratio 10 yr P/S Low 10 yr P/S High 5 yr low Yield % 5 yr max Yield %
3.19% 3.8% 6.2% 25.70 3.43 2.40 3.90 2.71% 3.82%

Positives;

  • Procter & Gamble has paid out a dividend consecutively for the past 27 years.
  • Procter & Gamble maintains an investment grade rating of AA-.
  • Procter & Gamble has maintained a three-year growth rate of dividends of 3.8 percent.
  • Procter & Gamble’s dividend yield is above that of the S&P 500 Index.
  • Procter & Gamble maintains a beta of 0.70, lower than the average company.

Negatives;

  • Procter & Gamble is trading above its ten-year average price/sales (P/S) ratio and maintains a high price/earnings ratio of over 22.

Latest Earnings & Overall Analysis:

The firm posted earning on April 26th. Earnings per share came in at 93 cents a share on net income of $2.5 billion. This was below that of the $2.75 billion from the previous yearly period at 97 cents per share.  This came in below analyst estimates. Revenue was $15.6 billion, about $100 million short of last year’s figures as well.  Revenue growth slowed for the second consecutive quarter after a strong performance in Q3 of last year. Organic sales growth came in at just above 1 percent due to volume gains alone.  One of the worst performers in the quarter was product Gillette. The razor division saw sales collapse by 6 percent as competition increased from European and on-line companies.

On the profits side, gross profit margin dropped by 20 basis points overall.  Rising costs and increased advertising spend were the two primary causes. P&G did affirm its full-year earnings per share numbers along with projecting that revenue growth would be above 2 percent. The firm did generate $2.3 billion in free cash flow while increasing their dividend for 61 consecutive years.

 

Overseas sales growth was weak in many regions.  In India, de-monetization had an impact on results while in Saudi Arabia income reductions by the government had a negative impact on sales of key products. Egypt, Russia, and Brazil were also weak markets.   Online sales came in better than expected and represent 5 percent of the firm’s overall revenue line.

The firm continues to be a cash machine, returning $3.8 billion to shareholders in the last three months. This included $1.8 billion in dividends and $2 billion in stock buybacks in the quarter. Proctor & Gamble should pay out $7 billion plus in dividend next year.  Stock repurchases should come in near $5 billion.   Although results for the last two quarters have been poor, it is no doubt to the major transition going on within the firm.  The firm has shredded nearly half its brands over the past five years. It maintains over 20 “major” brands that bring in at least a billion dollars.  It has driven down key brands to about 65 in total.

Cost savings is also a big part of the P&G story. It is hoping to cut over $10 billion in total costs over the next three years through streamlining operations, reducing material costs, and increasing productivity for its smaller brand base. Overall, the firm is one of the leading companies in the consumer staples category.

2016 2015 2014 2013 2012
Earnings per Share 3.67 4.02 4.22 4.05 3.858
Annual Dividend 2.66 2.59 2.45 2.29 2.14
Payout Ratio 72.48% 64.43% 58.06% 56.54% 55.47%

The consumer products company placed its fiscal 2017 adjusted EPS guidance of $3.67. The average forecast by most analysts is $3.85 per share. We think a midpoint level of $3.75 is reasonable. At that level, the firm trades at $86.45 and at 23 times next year’s earnings. This is a rich multiple considering the market trades at 19 times earnings while many other high dividend stocks trade at 14 times earnings. Despite the rich valuation, this stock remains a key stock to own due to its strong dividend history, higher than average yield, very low beta, and outstanding balance sheet.

Earnings per Share 2017 (projected) 3.75
Dividend 2.74
Payout Ratio 71.17%

Based on the firm’s consistent dividend growth, impressive financial credit rating and low beta, Procter & Gamble Company qualifies as one of our Top 100 Dividend Stocks

 

The Procter & Gamble Company Dividend Yield Historical Chart (Click to enlarge)

Chart Explanation:  Dividend growth stocks may be viewed undervalued when the current yield is above historical readings for the past 5 years. 

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