After a half-decade of slimming down, Procter & Gamble (NYSE:PG) is telling Wall Street it’s in fighting shape and ready to rumble for growth.The owners of PG stock shouldn’t care.
What most investors want from PG stock is a dividend. They want to buy an attractive yield and watch it grow, along with that dividend.
That’s what they have been getting, despite all the company’s noise and its strategy shifts. At its Mar. 29 early-afternoon price of about $103.50, PG stock’s quarterly dividend of almost 72 cents per share, most recently paid last month, yields 2.79%. It’s usually about 3%. The low yield indicates a hot stock, and indeed the shares are up nearly 12% so far in 2019, in-line with the S&P 500.
As American investors continue to age, PG stock is becoming fashionable.
A Rising Tide
PG’s brands, which once included everything from Folger’s coffee and Pringle’s potato chips to Duracell batteries and Crisco shortening, have been whittled down this decade into what the company defines as “care” products. The category includes-baby-care products like Pamper’s diapers, laundry-care products like Tide soap, and oral-care products like Crest toothpaste.
These brands delivered $66.8 billion of sales for the year ending last June, $9.8 billion of which reached the net-income line, equaling an impressive net margin of nearly 15%. PG’s operating cash flow has been expanding and should top $15 billion. Its balance sheet is strong, with $21.5 billion in long-term debt buttressed by about $12 billion in cash and short-term investments. With 2.5 billion shares, PG stock’s current dividend costs about $7.2 billion per year.
PG has been dropping brands to cope with retailers’ continuing march to store brands that seem especially popular in the food sector, as supermarket chains like Aldi and Trader Joe’s have become exclusively private label, and giant retailers like Target (NYSE:TGT), Walmart (NYSE:WMT) and Amazon.Com (NASDAQ:AMZN) are finding that the food business has become profitable. PG’s cleaning brands also lend themselves to becoming services, like Mr. Clean Car Washes and Tide dry cleaners and laundries.
PG Stock Is a Dividend Aristocrat
PG stock is not for everyone, even though its recent history would indicate it might be.
While the shares have been outperforming the market over the last year, up 23.6% against an average S&P stock loss of 3.7%, Procter & Gamble stock is up only 29% over the last five years, against the S&P’s 50% gain.
It’s the quarterly dividend, carefully calibrated by management to the thousandth of a penny, that is the star of PG stock. It’s up an average of about 7 cents per quarter over the last five years,as it stood at 44 cents per share ten years ago. Over ten years, the dividend of PG stock is up over 60%, and the stock price is up 118%. That’s what dividend aristocrats can deliver.
It seems to make sense to grab this kind of stock when the iron is cold, when it’s less fashionable. But its yield is lowest when the chance of a dividend hike is highest. Analysts expect PG stock’s dividend to rise 4% this year, to about 74.5 cents. That would bring the yield to 2.9%.
The Bottom Line on Procter & Gamble Stock
P&G stock is a long-time dividend aristocrat, but such stocks are in fashion right now, so PG’s current yield is below its average for the decade.
Its current yield is equivalent to that of a 30-year government bond, although investors will have to pay taxes on it.With Procter & Gamble stock, investors are betting the dividend will keep ratcheting up, slowly, and that time will work its magic, delivering a return on the underlying asset.
That’s a bet a lot of conservative investors are happy to make right now.
Dana Blankenhorn is a financial and technology journalist. He is the author of a new mystery thriller, The Reluctant Detective Finds Her Family, available now at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in AMZN.