Procter: 67 years of rising dividends

Procter & Gamble’s sales remain strong despite concerns that high inflation and interest rates would prompt consumers to switch to cheaper brands. The strong consumer loyalty reflects the trust customers place in the company’s brands, many of which are over a 100 years old.

Procter & Gamble’s brand power also helps to explain our confidence in the company’s ability to maintain annual dividend hikes, for 2024 and beyond.

PROCTER & GAMBLE CO. $153 is a top pick for 2023. The stock (New York symbol PG; Income-Growth Portfolio, Consumer sector; Shares outstanding: 2.4 billion; Market cap: $367.2 billion; Dividend yield: 2.5%; Dividend Sustainability Rating: Highest; gives you a stake in one of the world’s largest makers of household and personal-care goods.

Procter last raised its quarterly dividend by 2.9% with the May 2023 payment. Investors now receive $0.9407 a share instead of $0.9133. The new annual rate of $3.76 yields 2.5%. Procter has paid shareholder dividends for 133 years and has increased its payout annually for the past 67 years.

The company has five business lines: fabric and home-care products such as Tide laundry detergent (35% of fiscal 2023 sales, 32% of earnings); baby, feminine and family-care goods, including Pampers diapers (25%, 23%); beauty items such as Head and Shoulders shampoo (18%, 21%); health-care items such as Crest toothpaste (14%, 14%); and grooming products, including Gillette razors (8%, 10%). Walmart accounts for 15% of overall sales.

Procter’s biggest market is the U.S., which supplied 47% of its 2023 sales. Its other major markets include China, the U.K., Canada, Japan and Germany; as a group, those five countries accounted for more than 20% of sales.

In 2014, the company shed about 100 less-important brands as part of its strategy to focus on 65 core brands. Procter is also making acquisitions to bolster its presence in certain markets. Its most recent significant acquisition was in November 2018, when it paid $3.9 billion for the consumer health unit of Germany’s Merck KgaA. It makes a variety of over-the-counter vitamins, and pain and cold remedies for the European, Latin American and Asian markets.

Thanks to the Merck acquisition and stable annual revenue growth over the past five years, Procter’s sales rose 21.2% from $67.68 billion in 2019 to $82.00 billion in 2023 (fiscal years end June 30).

Thanks in part to price increases for many of its products, earnings before unusual items jumped 23.3%, from $11.88 billion in 2019 to $14.65 billion in 2023. Due to fewer shares outstanding, earnings per share gained 30.5%, from $4.52 to $5.90.

Procter’s strong brands make it easier to pass along higher costs to customers. The company also benefits from innovative new products. For example, one of its most successful new products was the Swiffer line of mops and dusters, launched in 1999. Those products generate in $500 million annually.

In August, Procter launched several new products that should encourage consumers to stick with its proven brands. Those include Downy Rinse & Refresh, a laundry detergent that eliminates stubborn smells from workout gear and baby clothing.

Procter expects its sales for fiscal 2024 will rise between 3% and 4%. Earnings should rise about 7.5% to $6.34 a share, and the stock trades at a reasonable 24.1 times that estimate.

Procter & Gamble is a buy.


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