by Will Ashworth | December 30, 2013 9:42 am
Procter & Gamble (PG) is one of the more popular consumer staples dividend stocks out there. With a long history of increasing its dividends, PG stock is a good play for investors looking for stable income investments. But Procter & Gamble stock has been lagging a bit, recently.
Since A.G. Lafley retook the helm at Procter & Gamble in May, PG stock is up 5% through December 24. That’s hardly a vote of confidence given the SPDR S&P 500 (SPY) has seen a 12% gain in the same period. Clearly, investors have serious doubts whether Lafley can cut costs while simultaneously reigniting growth.
With PG stock nowhere near a slam dunk it makes sense to consider other options that give you ownership in Procter & Gamble stock while still protecting you in case Lafley fail in his efforts. What are the best ETFs to own to get the job done? Here are five easy ways to throw PG stock in your cart.
PG Stock Weight: 12.6 %
The Vanguard Consumer Staples ETF (VDC) is the best ETF to own if you believe PG stock will rise in 2014.
Procter & Gamble stock represents the largest of 111 holdings in VDC’s $1.9 billion in total net assets. With a median market cap of $74 billion, it’s almost exclusively invested in large-cap US consumer staples. Its top 10 holdings account for 61.4% of its portfolio, making it a very concentrated bet. The VDC has outperformed PG stock in four out of the last five years, which has led to a four-star rating from Morningstar.
Another great reason to own this ETF is its international exposure. The VDC holds an entire portfolio of U.S. companies that all generate significant business outside North America, so you’re essentially buying a global ETF for just 0.14% annually. At the end of the day you get PG stock plus a bunch of other great consumer staples stocks like Coca-Cola (KO) and Colgate-Palmolive (CL) for next to nothing, an SEC yield of 2.4% and performance to boot.
What more can you ask for?
PG Stock Weighting: 7.16%
The iShares Global Consumer Staples ETF (KXI) seeks to replicate the performance of the S&P Global 1200 Consumer Staples Sector Index, a collection of 100 companies including Procter & Gamble stock that is selected from the S&P Global 1200.
KKI’s top 10 holdings account for 43.7% of its $641 million in total net assets with PG stock the second-largest holding at 7.16%. While the VDC is 99.2% invested in U.S. companies, the KKI has just 51.4% invested in America, with the U.K. and Switzerland the next two highest country weightings at 14.6% and 7.6% respectively.
An alternative to KKI is iShares’ Global 100 ETF (IOO), also 100 stocks, but with a slightly smaller American concentration. The big problem with IOO is that PG stock accounts for just 2.45% of its portfolio, giving investors far less exposure to the consumer staples giant.
The management expense ratio for KKI is 0.48%, which is more expensive than all but two of the top 10 global equity ETFs (in terms of net assets) according to ETF Database. However, the name of the game here is to gain exposure to PG stock while providing consumer staples diversification beyond one company, so the higher MER isn’t a deal-breaker.
PG Stock Weighting: 6.63%
The iShares High Dividend ETF (HDV) seeks to invest in quality U.S. companies that also pay above-average dividends. PG stock is the fourth-largest holding with a weighting of 6.63%. Its top 10 holdings account for 61% of the fund’s $3.2 billion in total net assets.
HDV has a total of 74 stocks, and Procter & Gamble stock is one of 12 consumer goods’ companies in the portfolio. Far more diversified than the previous two funds in terms of sector ownership, consumer goods’ stocks represent 26.5% of its portfolio, with health care the next highest weighting at 17.5%.
As mentioned earlier, HDV looks for solid companies paying higher dividends. The HDV’s SEC-yield is 3.18% — 78 and 104 basis points higher than the VDC and KKI respectively. In terms of performance the HDV’s total return year-to-date through December 24 is up 22.6%, 464 basis points higher than KKI and 430 basis points less than VDC. HDV has produced solid if not spectacular returns.
If dividends are your thing, this is the best ETF holding PG stock.
PG Stock Weighting: 4.68%
Although PG stock is the third-largest holding in the iShares Morningstar Large-Cap ETF (JKD), it represents just 4.68% of the $433 million in total net assets.
In one respect, JKD is similar to HDV in that they both invest in large-cap stocks. However, JKD invests 72% of its funds in growth-value blends whereas HDV allocates 53% of its portfolio to value stocks with the remainder in growth-value blends. In addition, JKD allocates just 14% of its portfolio to consumer goods compared to 26% for HDV. JKD is much more diversified but it’s also less reliant on consumer staples stocks, which many investors favor during times of economic difficulty.
If you believe that ETFs with low management expenses produce better returns you’ll love JKD. Charging 0.20% annually, it has achieved a five-year annualized total return of 18.0%. In the last two calendar years it has handily outperformed the HDV, KXI and VDC. Its SEC-yield is a modest 1.87% which puts it within shouting distance of both KXI and VDC. The only downside other than the smallish weighting in PG stock is that it’s U.S.-centric, with just 2% invested outside America.
PG Stock Weighting: 0.65%
I chose the SPDR Global Dow ETF (DGT) for two reasons: First, it allocates 55% of its $102 million in total net assets outside the U.S. Secondly, it’s equal weighted, meaning PG stock gets the same allocation as the other 149 stocks in the portfolio when reset every September.
I’m a fan of equal-weighted ETFs because the allocation methodology allows for profit-taking, unlike market cap-weighted ETFs where the top holdings become an increasingly bigger part of the portfolio ratcheting up the risk if a broad-based market correction were to take place.
There are definitely pros and cons to equal-weighted ETFs, but there is no argument that they provide a more democratic form of investment, if not a cheaper one. At 0.50% annually, it’s a lot to pay for DGT’s mediocre performance. But before you toss this one in the garbage remember that Europe (just now recovering from a recession) represents 31% of the portfolio’s weighting and will likely see a second year of superior returns in 2014. Not to mention income investors will like the 2% SEC-yield.
Its 13-year operating history combined with a small asset base indicates that investors have ignored this global fund in favor of more popular options like the Vanguard Total World Stock ETF (VT), or the previously mentioned IOO. While it might not be my first choice to gain exposure to PG stock, it’s certainly worth considering.
As of this writing, Will Ashworth did not own a position in any of the aforementioned securities.
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