Procter & Gamble (PG) Stock Dividend Analysis
The Procter & Gamble Company engages in the manufacture and sale of consumer goods worldwide. The company operates in three global business units (GBUs): Beauty, Health and Well-Being, and Household Care. This dividend aristocrat has raised distributions for 53 consecutive years.
This dividend stock has delivered an average annual total return of 3.30% over the past decade.
Earnings per share have grown at an average pace of 12.50% per annum. For FY 2010, analysts expect the company to earn $4.15/share, which is higher than 2009’s EPS of $3.58. For FY 2011 analysts expect Procter & Gamble to earn $4.10/share. The company has focused on cost cutting, improving efficiencies and streamlining its product portfolio over the past few years. It sold its Folgers Unit and exited its pharmaceuticals operations. As consumer spending picks up, the company’s recognizable brand products could get a nice boost in sales, especially if it increases advertising. Emerging and developing markets, product innovation, focusing on high margin products as well as strategic acquisitions could deliver strong earnings growth over the next decade. The demand for the company’s line of consumer products is generally stable and not much affected by overall economic conditions. The company continues to benefit from its acquisition of Gillette, through cost synergies and sales growth opportunities from its diverse sales channels.
The annual dividend per share has increased by an average of 11% annually, which is below the growth in earnings. An 11% growth in dividends translates into the payment doubling every almost every six and a half years. Procter & Gamble has managed to double its distributions every seven years on average since 1973.
The return on equity has decreased since the acquisition of Gillette in 2006.
The dividend payout ratio has consistently remained below 50%. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.
I think that Procter & Gamble is attractively valued with its low price/earnings multiple of 15, a not too high DPR. However the current dividend yield is below the 3% minimum threshold that I have set. Two of PG’s competitors, Colgate-Palmolive (CL) and Kimberly-Clark (KMB) trade at P/E multiples of 19 and 13 times earnings respectively. Colgate-Palmolive currently spots a 2.60% dividend yield, while Kimberly-Clark has a 4.00% yield. I would consider adding to my Procter & Gamble holdings on dips below $59.
Full Disclosure: Long PG
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