A new dividend stud for my portfolio: Procter & Gamble
Procter & Gamble (PG:US) is one of the largest companies in the world and has been paying dividends for 121 consecutive years since its incorporation in 1890. With that said, you could stop right there and make a strong case for owning this stock.
However, there is more to P&G than riding on coattails of history. You know what they say about past performance, it’s in the past. So, I’ve chosen to look ahead. In doing so, I’ll share a few reasons why I bought this stock earlier this year.
From its website, P&G mentions they touch the lives of about 4.4 billion people around the world with its diverse portfolio of products: Pampers®, Tide®, Bounty®, Pringles®, Crest®, and Head & Shoulders® just to name a few. P&G has operations in about 80 countries and its products are available in more than 180 countries worldwide. P&G has three distinct lines of business:
- Beauty and Grooming
- Health and Well-being
- Household Care
Given this diverse product line, it is not hard to see why P&G is a dominant force in the consumer industry. Going-forward, I do not see this model changing. If anything, the demand for its products will only increase around the world.
One of the key growth areas for P&G is emerging markets. P&G is smart to focus in this area – developing markets make up about 80% of the world’s population. Procter & Gamble already has a strong market share in many regions of the world: Central & Eastern Europe, Middle East & Africa Region, Latin America and Asia. Over the last couple of years, P&G has announced it will keep its focus on emerging markets, opening many new manufacturing facilities outside developed markets. CEO Bob McDonald was quoted saying he wants P&G to grow sales in China and India to reach 1 billion more customers by 2014. This statement was made a couple of years ago. That’s an aggressive strategy. P&G’s market share has been on the rise in the developing world and will likely continue for decades to come, as consumer demand in the rest of the world outpaces North America.
- North America accounted for 44% of total sales in 2009 or $34.8 billion.
- Developing Markets accounted for 30% of total sales in 2009 or $23.7 billion.
- Western Europe accounted for 22% of total sales in 2009 or $17.4 billion.
- North East Asia accounted for 4% of total sales in 2009 or $3.2 billion.
- Quarterly dividend is $0.525 USD.
- Dividend yield is >3%.
- Dividend payout ratio is about 60%.
- 5-year average dividend growth rate is just over 11%.
- Total return over last 5 years is about 20%.
- In 2011, P&G increased their annual dividend for the 55th consecutive year.
Long-term potential is not without long-term risks as well. P&G depends heavily on global commodities for product manufacturing. Higher commodity costs will eat into profits. To counter this, the company will need to continually improve its manufacturing processes and become more efficient as rising paper and natural gas prices occur over time. That said, Canada is well positioned to provide those commodities, so there is good reason to be optimistic.
Procter & Gamble also faces competition; they are not the only big player in this space. While P&G generates much more revenue than competitors like Unilever (UL:US), Clorox (CLX:US), Colgate-Palmolive Company (CL:US) and Kimberly-Clark (KMB:US), and these companies have many strong brands in their own right. When you’re on top, there’s only one direction to fall.
As the largest and more importantly, because of the broadest portfolio of household, health and beauty products in the world, P&G now has its place in my dividend-stock portfolio. Unless significant changes to this organization occur or unless there is a significant dividend cut, I won’t be selling my position. This is a stock to buy, hold and hold some more.
What’s your take of P&G? Long-term dividend stud or dud?