Then and Now – Procter & Gamble
Welcome to another Then and Now post, a continuation of my series where I revisit some older blogposts and either rip them to shreds (because my thinking has changed on such subjects) or I’ll confirm my position on various personal finance topics or specific stock and ETF investments.
You can check out my previous posts in this series about these stocks below:
Today’s post is about a U.S. dividend paying stock I’ve owned for many years now: Procter & Gamble (PG:US) since before 2010 in fact, one of my first U.S. stocks.
Then
- I started writing about this stock back in March 2012.
- My reasoning to own this stock was presented here and rather simple. One of the main reasons I bought this stock (and still own it today) was because of their strategy to continue to grow revenues outside North America long-term. My hunch was (and remains) that P&G’s market share will continue to rise across the developing world.
- Back in 2009, I was transitioning out of big bank mutual funds. Around that time, I gravitated to dividend investing; I started looking at various Canadian and U.S. dividend paying stocks to buy and hold. This company was one of them. Beyond the growth prospects, I found the dividend history of PG to be very appealing. At the time of my 2012 post, PG had paid dividends for 121 consecutive years since incorporation 1890.
- Back then, the quarterly dividend was $0.525 USD.
- The dividend yield was just over 3%.
Now
- Procter & Gamble remains a consumer products behemoth. At the time of this post, PG market cap remains over $200 billion.
- In April 2018, PG increased dividends for the 62nd consecutive year.
- The PG dividend is now $0.717 USD per quarter.
- I predict another dividend hike this spring.
- The dividend yield remains a solid 3% at the time of this post.
- I continue to reinvest all dividends paid from this stock. In doing so, I earn one more share commission-free each quarter. Money that makes money can make more money – My Own Advisor.
- You can learn about dividend reinvestment plans in more detail here.
Will PG continue to pay dividends for the coming decades? Hard to say, the accurate financial future is always very cloudy. However, if I had to guess, as the manufacturer of one of the world’s largest and most diverse portfolios of consumer products available, I believe PG will continue to have a place in my portfolio for the foreseeable future.
Over time, I have and will continue to complement the income derived from this stock with low-cost U.S. ETFs for extra diversification.
You can read about those great low-cost ETFs to own for the U.S. market here.
Check out our income-generating approach using dividend stocks here.
This is our approach to wealth-building using low-cost ETFs here.
Thanks for reading and stay tuned for another Then and Now in future articles.
What do you make of my decision to hold PG stock? What do you make of my decision to own more U.S. ETFs over time? Let me know in a comment!
Mark
My name is Mark Seed - the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I'm looking to start semi-retirement soon, sooner than most. Find out how, what I did, and what you can learn to tailor your own financial independence path. Join the newsletter read by thousands each day, always FREE.
Hello Mark !
P&G i think i have few things at home that made by them and so does almost every household 🙂
have you had a chance to look at the new Vanguard all equity etf VEQT ? I guess the list of etfs will keep growing longer everyday .
I hope to write about that new Vanguard fund next week. That might be a game changer on top of what I own – no need for future stock selection?
The only quibble I have with it, on the surface, is the CDN-hedged portions but with a management fee of 0.22% – assuming a split of 30%-40% each of CDN, U.S. and global assets – wow – that might be the only fund to own for decades to come for many investors!
Bad to PG, we’ll see if long-term returns catch up with the S&P 500 on this one. I think they will.
I can’t imagine PG would catch up to the S&P and sustain it over any length of time. A big company paying a big dividend is typically going to be a slow mover. Your best bet would be on the next major crash of the S&P its likely that PG wouldn’t fall as much and you could make the swap over then. Selling something that is down 20% to buy something that is down 30% is a great way to multiply wealth. Takes guts though…
-20% returning to even = 25% gain
vs
-30% returning to even = 42% gain
To make things more complex there’s a risk factor of owning any individual stock so if you’re taking on more risk you should be getting more reward. But in the case of a swap, you’d be derisking and nearly guaranteeing your 42% gain. But if it takes another 5 years to get your dip you’re missing out on quite a bit between now and then.
Yeah. Then again, I’m hoping to “live off dividends” within the next 10 years. So, PG dividends will pay me to stay invested. Potentially faulty thinking since I can always sell units of VOO or other that invest in the S&P 500 when markets are high. I’m an investor in VYM and HDV and I can only see those investments increase/I will buy more units over time inside my RRSP. That’s the game plan anyhow!
Well, there is a difference between living off dividends and selling units to live. The later one will be affected more by sequence of returns risk. In accumulating years, it does not matter, in retirement years, it could matter a lot.
Another thing is that with selling units, at least for me, it will be quite difficult to just sell on a schedule. I will definitely pay attention to the market and try to sell at high. Market volatile will cause lots of anxiety. With dividends, I don’t need to pay that much attention to the market and I don’t need to think hard when to sell. It’s easier on my mind.
I would think in retirement, highest return is not necessarily the highest priority. As I am quite close to my retirement time, I am very happy to hold PG and JNJ, although I know the total return most likely will lag behind of S&P.
“Another thing is that with selling units, at least for me, it will be quite difficult to just sell on a schedule.”
This is what I struggle with when it comes to selling stocks at a certain time. What if things tank and I have to sell? That means I’ll need to hold bonds. Bonds are likely going to be long-term losers to inflation.
“With dividends, I don’t need to pay that much attention to the market and I don’t need to think hard when to sell. It’s easier on my mind.”
You bet. In Barbados now, got two raises this week. Income from BIP raise alone increased our future cash flow by $52. Love it. Not working, on vacation, and income growing regardless of the stock price.
I’ll continue to hold JNJ and PG for the time being as well.
Do you think at some point you’ll sell this? With dividends reinvested since 2012 the returns are as follows:
PG = CAGR 8.8%
XLP (Consumer goods ETF) = CAGR 10.15%
S&P 500 = 13.60%
Those are significant losses against either benchmark. I guess the question is how much longer will you continue to get below watermark returns before you make an adjustment?
Check my math here:
https://www.portfoliovisualizer.com/backtest-portfolio?s=y&timePeriod=4&startYear=2012&firstMonth=1&endYear=2019&lastMonth=12&calendarAligned=true&endDate=02%2F04%2F2019&initialAmount=10000&annualOperation=0&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&frequency=4&rebalanceType=1&absoluteDeviation=5.0&relativeDeviation=25.0&showYield=false&reinvestDividends=true&benchmark=VFINX&symbol1=PG&allocation1_1=100&symbol2=XLP&allocation2_2=100
I’ve considered it Brett. I really have. I’ve owned JNJ for a bit longer, not much, and it has largely mirrored the S&P 500 during that time.
I also own a few other stocks for USD income but more and more, I’m invested in U.S. ETFs like VYM, HDV and I might potentially own DGRO or VIG at some point. I figure the U.S. market is VERY hard to beat long term and I might as well simply own funds that provide both growth and income inside my RRSP.
https://www.myownadvisor.ca/december-2018-dividend-income-update/
“While I believe our current basket of 32 Canadian stocks is fine to cover the Canadian market, largely the same stocks the big funds in Canada own anyhow (see examples here) I know Canada only represents somewhere in the range of 3-4% of the global market. Therefore, if you only focus on Canada you might be missing out on healthy returns from around the world.
So, to avoid our fear of missing out, we own some stable blue-chip U.S. dividend paying stocks (see the ones above) and some U.S. listed-ETFs like VYM. We put those assets in our RRSPs for many reasons listed here.”
JNJ is considered healthcare (I believe) and it has done very well to match the S&P returns since 2012. But it has trailed its ETF benchmark XLV:
JNJ: CAGR 13.71%
S&P: CAGR 13.60%
XLV: CAGR 16.37%
Picking stocks that beat the S&P and their corresponding etfs is tricky stuff. This is especially true with a buy and hold portfolio, and by the time you own a couple of sector etf’s you essentially own the S&P 500.
Link to Math:
https://www.portfoliovisualizer.com/backtest-portfolio?s=y&timePeriod=4&startYear=2012&firstMonth=1&endYear=2019&lastMonth=12&calendarAligned=true&endDate=02%2F04%2F2019&initialAmount=10000&annualOperation=0&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&frequency=4&rebalanceType=1&absoluteDeviation=5.0&relativeDeviation=25.0&showYield=false&reinvestDividends=true&benchmark=VFINX&symbol1=XLV&allocation1_1=100&symbol2=XLP&symbol3=JNJ&allocation3_3=100
Thanks Brett. That’s a great tool – Portfolio Visualizer.
I’ve been very tempted to own some XLV – I can foresee healthcare being a HUGE win in the coming decades and likely outpacing S&P 500. Just a guess of course as demographic shifts occur.
Are you a stock holder of any companies or an indexer?
Mark
I started as a dividend investor. Having regular income that I didn’t have to work for seemed like a no brainer. But I saw the light many many years ago. As online backtesters got better and better it became obvious. Then Warren Buffet made his infamous “The Bet” speech in his annual newsletter. If you haven’t read it I would highly encourage you to. I kept my previous dividend folder in a ‘mock’ format and now 15 years later the S&P has crushed it. I’d much rather have a portfolio that is 30% larger and then ‘worry’ about how to manage it than to have a much smaller portfolio that pays dividends.
The post-retirement discussion is a whole other ball of wax. But the asset accumulation phase seems like a no brainer to me. I will likely swap from VOO to VYM and/or put more into XIU. The TSX pays a great dividend with no individual stock risk. I haven’t thought it through fully yet though, I probably should though as I’m inside 5 years to retirement (if all goes according to plan)
Oh I remember “the bet”. Great call by him.
I understand where you are coming from but to be honest, I know focusing on dividend income has helped me as an investor – even if some holdings (like PG) have underperformed VOO, etc. (S&P 500).
I am realistically about 10 years away from full-on retirement so toggling to market-like returns vs. income-oriented approach would not be smart now. I believe staying my course – is – but that could be my bias. re: “The post-retirement discussion is a whole other ball of wax.”
I own a few hundred shares of VYM (mirrors VTI almost over last 10-years) and delivers slightly more yield (than VTI) so I’m fine with that as I intend to spend the dividends only early in retirement/semi-retirement.
I’m a BIG fan of XIU. I pretty much own the top-20 companies of XIU. We’ll see if I switch back long-term.
I think a blend of VYM or HDV + XIU + VXUS or VXC would work very well for most investors. Thoughts?