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Procter & Gamble (NYSE:PG) is the hottest dividend growth stock in my portfolio year to date. It has appreciated 11.83%, while Caterpillar (NYSE:CAT) (+11.03%) and Nucor (NYSE:NUE) (+8.85%) are slightly behind it. I now consider it to be a cyclical stock like the other two, based on emerging market sales growth, especially in BRIC countries.

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(Chart data from Yahoo Finance and David Fish's CCC charts)

Note how PG leveled off after the initial dip in 2000 and grew steadily until 2007. It has repeated the pattern during the current 5 year cycle, but after earnings Q2 2012-13, it has taken off.

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When compared with CAT and NUE, the cyclicallity is muted. However, these short bursts at the beginning of the next cycle are responsible for the majority of price appreciation in this dividend growth stock.

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I have owned and dripped PG for a long time (see last year's article here) and have always treated it as a strong dividend growth stock. Now there is growth in emerging markets, especially Brazil and India. See this recent article by Trefis. Therefore, I decided to revisit my dividend reinvestment study of last year with updated data:

StockDate of reinvestDiv Rate# SharesDividendDrip price# Shares purTotal ValueCurrent Yield
Totals 168.26$1,500.93 23.90
01/16/13$0.56166.91$93.80$69.341.35$11,667.403.24%
10/17/12$0.56165.57$93.05$69.471.34$11,595.303.24%
07/18/12$0.56164.15$92.25$64.821.42$10,732.343.47%
04/25/12$0.56162.78$91.48$66.891.37$10,979.883.36%
01/18/12$0.53161.50$84.79$66.031.28$10,748.403.18%
10/19/11$0.53160.20$84.10$64.751.30$10,456.903.24%
07/20/11$0.53158.90$83.42$64.201.30$10,284.693.27%
04/27/11$0.53157.61$82.74$64.021.29$10,172.673.28%
01/19/11$0.48156.45$75.41$65.351.15$10,299.542.95%
PG10/20/10$0.48155.27$74.84$63.371.18$9,914.353.04%
07/21/10$0.48154.06$74.25$61.111.22$9,488.603.15%
04/28/10$0.48152.89$73.69$63.171.17$9,731.703.05%
01/20/10$0.44151.78$66.79$60.451.10$9,242.152.91%
10/21/09$0.44150.63$66.28$57.491.15$8,726.083.06%
07/22/09$0.44149.43$65.75$54.871.20$8,265.153.21%
04/22/09$0.44148.12$65.17$49.601.31$7,411.893.55%
01/21/09$0.40147.10$58.84$57.571.02$8,527.222.78%
10/22/08$0.40146.10$58.44$58.76.99$8,643.432.72%
07/16/08$0.40145.19$58.08$63.89.91$9,334.502.50%
04/16/08$0.40144.36$57.74$69.27.83$10,057.562.31%

The spreadsheet shows a stock with a slightly cyclical pattern which helps the dividend reinvestment provide additional shares when the stock troughs, similar to dollar cost averaging. I show a chart of Total Value and Yield for the period below:

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Note the rise in current yield (dividend rate/stock price) from q2 2008 to q1 2013. The yield peaked at 3.55% at the bottom of the great recession in 2009. The trend of the yield is up, due to the yearly dividend rate increases averaging 10.2% for the past 5 years. Also note that we are positioned at the time of the traditional dividend increase, usually in April.

There are two ways to play this scenario. One could buy now based on perceived price appreciation and sell with a gain when the stock peaks out (what I call a strategic trade). Secondly, this stock being a core stock in my portfolio, I drip the dividends and make strategic purchases at the 4% yield point. If you look at the long-term chart, this stock tends to grow at a steady pace and splits when it gets to around $100 per share. There could be a run up close to the usual dividend increase.

Conclusion: Procter & Gamble has generally rapidly increased its share price after earnings. There appears to be top line growth in sales, especially in BRIC countries. We are anticipating a dividend increase in April. Now may be the time for a strategic investment in PG in addition to the regular drip.

It is critical that each investor does their own due diligence before making any investment.

Source: Procter & Gamble: Breakout?