Procter & Gamble For Consumer Goods: If They Don't Sell It, You Don't Need It And A Dividend King
Summary
- Procter & Gamble has increased its dividend for 63 years and presently has a yield of 2.7%, which is above average.
- Procter & Gamble’s total return overperformed the DOW average for my 53-month test period by 21.64%, which is great and seems to ignore the pandemic.
- Procter & Gamble’s three-year forward CAGR of 8% is good and will give you increasing growth as the company starts to sell more products in this pandemic.
Procter & Gamble (NYSE:PG), one of the largest suppliers of consumer products and personal care products in the United States and 180 countries worldwide, is a buy for the conservative income and total return investor with the present entry price looking worth a buy. The management of Procter & Gamble is good and has continued to grow the business by using its cash to expand the product base. Procter & Gamble is being considered for The Good Business Portfolio, my IRA portfolio of good business companies that are balanced among all styles of investing.
Source: PG website
Procter & Gamble is being reviewed using The Good Business Portfolio guidelines. I use a set of guidelines that I codified over the last few years used to review the companies in The Good Business Portfolio (my portfolio) and other companies that I am reviewing. For a complete set of guidelines, please see my article "The Good Business Portfolio: Update to Guidelines, March 2020". These guidelines provide me with a balanced portfolio of income, defensive, total return, and growing companies that hopefully keeps me ahead of the Dow average.
When I scanned the five-year chart, Procter & Gamble has an interesting chart going up, and to the right is a good slope from 2016 to the present date with a few bumps down along the way. The chart tells the recovery story from the bump down in 2018 and the present pandemic.
Data by YCharts
Procter & Gamble is being reviewed in the following topics below.
- Investment Fundamentals
- Company Business
- Conclusions
- Portfolio Management Highlights
Investment Fundamentals
The Good Business Portfolio Guidelines are just a screen to start with and not absolute rules. When I look at a company, the total return is a key parameter to see if it fits the objective of the Good Business Portfolio. My total return guideline is that total return must be greater than the Dow's total return over my test period. Procter & Gamble passes against the Dow baseline in my 53-month test compared to the Dow average. I chose the 53-month test period (starting January 1, 2016, and ending to date) because it includes the great year of 2017 and 2019, and other years that had a fair and bad performance. The good Procter & Gamble total return of 72.71% compared to the Dow base of 51.07% makes Procter & Gamble a good investment for the total return investor and the conservative income investor at the present entry price. Looking back five years, $10,000 invested five years ago would now be worth over $17,300 today. This gain makes Procter & Gamble a good investment for the total return investor looking back and has future growth as the worldwide economies want more of PG's products. The above-average yield gives steady income for the conservative income investor that has had 63 years of dividend increases, a dividend king.
Dow's 53-Month total return baseline is 51.07%
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Procter & Gamble does meet my dividend guideline of having dividends increase for 8 of the last ten years and having a yield of at least 1%, passing this guideline with dividend increases for 63 years. The recent earnings payout ratio is moderate, at 63%. After paying the dividend, this leaves cash remaining for investment in expanding the business. The dividend income is steady, and the present future growth of 8% should increase going forward as the company grows. Looking ahead, I estimate the quarterly dividend will be increased next year by $0.05 or a 6% increase. The graphic below shows the importance of shareholder support for the dividend with steady increases.
Source: CAGNY Conference February 2020
I also require the CAGR going forward to be able to cover my yearly expenses and my RMD, which is zero in 2020, with a CAGR of 5.2%. My dividends provide 3.3% of the portfolio as income, and I need 1.9% more for a yearly distribution of 5.2%. The three-year S&P CFRA CAGR of 8% passes my requirement. The good future growth for Procter & Gamble can continue its uptrend benefiting from the continued growth in the United States and world economies as the pandemic gets under control.
I have a capitalization guideline where the capitalization must be greater than $10 billion. Procter & Gamble passes this guideline. Procter & Gamble is a large-cap company with a capitalization of $287 billion well above the guideline target. Procter & Gamble 2020 projected cash flow at $16 billion is good, allowing the company to have the means for company growth and increased dividends.
One of my guidelines is that the S&P rating must be three stars or better. PG's S&P CFRA rating is four stars or buy with a one-year target price of $133, passing the guideline. Procter & Gamble is below the target price at present by 12% and has a high PE of 23, making Procter & Gamble a buy at this entry point if you consider the projected growth rate, high cash flow, and the diversity of their products.
I look for the earnings of my positions to consistently beat their quarterly estimates. For the last quarter, on April 17, 2020, Procter & Gamble reported earnings that beat expected by $0.04 at $1.17, compared to last year at $1.06. Total revenue was higher at $17.21 billion more than a year ago by 4.6% year over year and missed by $80 million from the expected total. This was a good report with bottom-line beating expected and the top line increasing with an increase compared to last year. The next earnings report will be out July 2020 and is expected to be $1.20 compared to last year at $1.09, a good increase.
One of my guidelines is would I buy the whole company if I could. The answer is yes. The total return is good, and the above-average dividend yield with 63 years of increases makes Procter & Gamble a good business to own for someone who wants a steady income and growth. The Good Business Portfolio likes to embrace all kinds of investment styles but concentrates on buying businesses that can be understood, makes a fair profit, invests profits back into the business, and also generates a good income stream. Most of all, what makes Procter & Gamble interesting is the steady dividend yield and the diversity of their products that are growing in all categories as per the graphic below.
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Source: CAGNY Conference February 2020
Company Business
Procter & Gamble is one of the largest retailers of diversified consumer products in the United States and 180 other countries.
As per data from Reuters:
Procter & Gamble is focused on providing branded consumer packaged goods to consumers across the world. The Company operates through five segments: Beauty, Grooming; Health Care; Fabric & Home Care, and Baby, Feminine & Family Care. The Company sells its products in approximately 180 countries and territories primarily through mass merchandisers, grocery stores, membership club stores, drug stores, department stores, distributors, baby stores, specialty beauty stores, e-commerce, high-frequency stores and pharmacies. It offers products under the brands, such as Olay, Old Spice, Safeguard, Head & Shoulders, Pantene, Rejoice, Mach3, Prestobarba, Venus, Cascade, Dawn, Febreze, Mr. Clean, Bounty, and Charmin.
Procter & Gamble is a good business with an 8% CAGR projected growth as the economy grows going forward with the increasing need for diverse home and personal products. The good earnings growth provides Procter & Gamble the capability to continue its growth by increasing earnings as the cash flow increases with the expansion in foreign countries and the large diversity of their products.
From the third-quarter earnings call are a few highlights that show the growth and opportunities that are the future of their growing consumer product business.
P&G products play an essential role in helping consumers maintain proper hygiene, personal health, and healthy home environments. Our products clean your laundry, your home, your hair, your body, your hands, and we clean and shave your face. They provide hygiene products for feminine protection, Baby Care, adult incontinence, and bathroom needs. Hair Care, shampoos to clean hair and conditioners and treatments to improve hair health. Facial cleansers, body wash, hand soaps, and antiperspirants deodorants address additional hygiene needs.
Consumption of hand soaps has obviously increased. Consumers in the U.S. are doing more laundry loads per week and washing more garments after wearing them just once. More loads are being done with unit dose detergents. They have seen a spike in demand for Tide antibacterial spray. This care consumption has increased as families eat more meals at home and are more concerned about the hygiene of their dishes, glasses, and silverware.
In late February, they launched Microban 24, an antimicrobial technology that keeps surfaces sanitized for up to 24 hours when used as directed. The power behind Microban 24 is a multilayer protective shield that binds the bacteria-fighting ingredient to the surface that's been cleaned, even when contacted multiple times, helping homes stay cleaner and more hygienic, longer.
Top-line results this quarter obviously benefited from consumer pantry loading in preparation for in-home quarantining. They are planning for pantry inventory levels to eventually return to normal. This higher level of consumer demand was served with our ramp-up and production levels and the depletion of retailer inventories. As at-home inventory decreases, they expect to refill the retail inventory pipeline. They believe the net effect of all of this shifted about 2 points of sales growth on a global basis from Q4 into Q3.
This shows the feelings of top management for the continued strong development of the addition of new products necessary for the continued growth of the Procter & Gamble business and shareholder return. Procter & Gamble has good constant growth and will continue as the United States and the population grow. The growth is being driven by adding to new product groups. The graphic below shows the diversity of the product range for Procter & Gamble that allows them to be highly diversified among many consumer products.
Source: CAGNY Conference February 2020
Conclusions
Procter & Gamble is a good investment choice for the conservative income investor with its above-average growing dividend of 63 years and a good choice for the total return investor at this entry point. Procter & Gamble will be considered for The Good Business Portfolio (My IRA account) when cash is available to expand the portfolios consumer sector. If you want a growing dividend income and good total return potential, Procter & Gamble may be the right investment for you. I buy what I consider great businesses that are fairly priced, and the present Procter & Gamble entry point looks good. If you want a solid growing income and a good total return potential, Procter & Gamble may be the right investment for you.
Portfolio Management Highlights
I am not selling in this correction and will wait it out until the stay at home order is over in many states and the United States is growing again. The good businesses in my portfolio should pop when this happens, hopefully in the next two months. The selling volume is down; therefore, the market may have well pasted the bottom, and better up markets are coming soon. When I make the next trade, I will note it in this section, and my last trade was in early February 2020.
The total return for the Good Business Portfolio is ahead of the Dow average from 1/1/2020 to June 5 by 0.07%, which is a small gain above the market loss of 5% for the portfolio with Boeing (BA) a strong drag but getting better. Each quarter after the earnings season, I write an article giving a complete portfolio list and performance, the latest article is titled "The Good Business Portfolio: 2020 1st Quarter Earnings and Performance Review". Become a real-time follower, and you will get each quarter's performance and portfolio companies after this earnings season is over.
This article was written by
Analyst’s Disclosure: I am/we are long BA, JNJ, HD, DHR, MO, OHI, PM, O, MCD. 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.
Of course, this is not a recommendation to buy or sell, and you should always do your own research and talk to your financial advisor before any purchase or sale. This is how I manage my IRA retirement account, and the opinions of the companies are my own.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.
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Comments (15)
Even a fantastic company should not be bought when it is overvalued!
Have a look at UL!
re: "Procter & Gamble will be considered for The Good Business Portfolio (My IRA account) . . . " Why in an IRA? Any and all dividends paid . . . Instead of paying a probable 15% tax rate on qualified dividends in a taxable account, you may be paying a much higher rate especially if you are close to RMD territory. Also, in a taxable account, you may have losses to offset taxable gains. Just sayin'.
That is a big one.