In the recent annual meeting of Procter & Gamble's (PG) shareholders, it established consumer and shareholder value creation as its top most priority. The company is already one of the most shareholder friendly companies. It has increased its dividends consecutively over the last 57 years, and it returned $12.5 billion in the form of dividends and share repurchases to shareholders last year.
With respect to consumer value creation, it continuously needs to innovate its product offerings. Recently Procter & Gamble has taken various initiatives to drive innovation in its fabric care division.
Enhancing its fabric care segment
Procter & Gamble's fabric care segment contributed 20% every year in the last three fiscal years to the total revenue. Out of $84.16 billion in revenue generated by Procter & Gamble in fiscal 2013, the fabric care segment contributed $16.83 billion. This is the highest contributing segment to the company's topline. This segment includes brands such as Tide, Downy, Gain, and Bounce.
So fabric care is an important segment for Procter & Gamble, and to drive innovation in the segment, Procter & Gamble has taken various initiatives. With these initiatives Procter & Gamble will look to bring together high fashion and washable fashion.
Recently Procter & Gamble appointed its first ever fashion consultant, Giles Deacon, who is known for his playful designs and was named British fashion designer of the year in 2006. He will introduce a machine-washable capsule collection to be unveiled at Procter & Gamble's Future Fabrics 2013 event in Milan. He will also advise the Procter & Gamble scientists on the benefits and potential of machine-washable fabrics. On the whole, Giles will guide Procter & Gamble on where to put its investments in new fabrics and the ability to clean smart fabrics.
Procter & Gamble will also work with Première Vision, which is a leading French trade show organizer. Première Vision will help Procter & Gamble to gain knowledge on technology advancements in fibers and fabrics. Procter & Gamble will apply these insights to its fabric care products. This will allow it to customers in easily caring for various types of clothing.
To further drive innovation, Procter & Gamble started a partnership between Tide Pods and the Council of fashion designers of America, or CFDA, with which it will form the "Washable Fashion Initiative". The main focus of this initiative is to advise the fashion industry with respect to benefits drawn from integrating machine-washable fabrics into their designs. Procter & Gamble expects the fashion industry will increase the use of machine-washable fabrics in their designs.
Tide and CFDA also conducted a survey to learn what restricts the fashion industry from using machine-washable fabrics. Close to 85% of the surveyed CFDA members said that they would like to design more with machine washable fabrics if there was a product that could preserve the quality and integrity of the garments for customers. With this finding, it will inform CFDA members about the benefits of machine washing with Tide pods.
These collaborations will help Procter & Gamble to create different types of laundry care products that will optimize clothing in beauty and performance. These initiatives were important to maintain its 25% global market share in the fabric care industry. We believe Procter & Gamble can increase its market share in the fabric care industry through innovation since such actions will further strengthen the brand image of the products under the fiber care umbrella.
The company and its peers giving considerable shareholder yield
Procter & Gamble's shareholder yield for the quarter ended June 2013 was 1.1% since it has paid dividends of $1.7 billion and also returned $282 million to shareholders through the share selling and repurchase activity. As per the current quarter, Procter & Gamble has announced a quarterly dividend of $0.6015 per share.
This can lead to an overall dividend payment of around $1.64 billion for the current quarter. Moreover, the company can achieve a shareholder yield of atleast 1.1% for the present and subsequent quarterly results with its plan to repurchase $5 to $7 billion worth of shares for fiscal year 2014, and a significant portion of this worth can be repurchased in the present quarter.
On the other hand Procter & Gamble's nearest rival in the personal care sector, Kimberly Clark (KMB), is also known to give dividends consistently and make share repurchases. In the last quarter ended June 2013, Kimberly paid dividends of $0.81 per share, which led to an overall dividend payment of around $313 million. Kimberly returned $219 million to shareholders with the overall share selling and repurchase activity. So, the total value returned to shareholders was around $532 million.
With respect to dividend payment and share repurchases, Kimberly's shareholder yield for the last quarter comes at 1.43%. Kimberly provided a better shareholder yield than Procter & Gamble in the quarter ended June 2013. We believe that Kimberly will continue to provide considerable shareholder yield for the coming quarterly results, as it has plans to make share repurchases worth $1.2 billion, in accordance with its present share repurchase program.
Another prominent player in the personal care industry, Colgate Palmolive (CL), also returned $310 million with stock sale and repurchase activity in the quarter ended June, 2013. It also paid dividends of $0.31 per share for the same period. This led to an overall dividend payment of around $335 million. So, the shareholder yield for Colgate comes at 1.13%, which is also slightly higher than Procter & Gamble.
Colgate can provide considerable shareholder yield in the present quarter and subsequent quarterly results since it still has to repurchase 36.3 million shares as per the present share repurchase program. The company had announced dividends of $0.34 for the present quarter, amounting to a dividend payment for the present quarter of around $315 million.
What Valuation says about Procter & Gamble and its peers?
PEG ratio (5yrs expected)
Procter & Gamble
The above table depicts that Procter & Gamble is performing better than Colgate in terms of revenue generation and profitability with respect to enterprise value. Procter & Gamble's PEG ratio also is lower in comparison to Colgate but not by a considerable difference.
Procter & Gamble seems to be a stock that shows a lot of promise after going through the valuation multiples. The most lucrative stock after going through the above table seems to be Kimberly, which has the lowest valuation multiples, but Procter & Gamble also has the potential to provide consistent returns to shareholders.
We believe that Procter & Gamble's efforts to drive continuous innovation in fabric care will enhance the brand image of the products under the segment. Its shareholder friendly policy will continue to impress investors. The company's continuous efforts to drive shareholder and consumer value creation will maintain investors' confidence in the long run.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: Fusion Research is a team of equity analysts. This article was written by Shweta Dubey, one of our research analysts. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.