Procter & Gamble Co: Lock in a Growing Income Stream From PG Stock
Top Dividend Stock for 2018 and Beyond
When it comes to consumer goods, people are willing to pay a premium for established brand names. And that’s one of the reasons why Procter & Gamble Co (NYSE:PG) has been making oversized profits for well over a century.
The same behavior can be seen in the stock market, as investors are willing to pay a premium for blue-chip companies. However, despite running one of the most established businesses out there, P&G hasn’t always been a market favorite; over the last 12 months, shares of Procter & Gamble stock tumbled more than 12%.
Now, large-cap stocks are not known for making big moves. Considering that Procter & Gamble is a huge company commanding nearly $200.0 billion of market capitalization, that was quite a tumble.
The big question, of course, is what investors should do in this case. In my opinion, the pullback in PG stock over the past year has presented a great opportunity for those looking for dividends.
You see, Procter & Gamble is one of the most solid dividend payers in the entire stock market. The company has raised its payout every year for the past 62 years. And it hasn’t missed a dividend payment since its incorporation in 1890, meaning 128 years of uninterrupted dividends. (Source: “Splits & Dividend History,” Procter & Gamble Co, last accessed June 11, 2018.)
As investors, we know all too well that past performance is no guarantee of future results. But in the case of Procter & Gamble, the company should have no problem continuing its amazing dividend paying track record.
The reason is simple: while the share price of Procter & Gamble can fluctuate, just like any stock, the company is capable of generating an incredibly stable business.
Making Money Through Thick and Thin
Procter & Gamble is a consumer staples company. That means it makes products that are essential to consumers. Among its huge brand portfolio are household names like “Tide,” “Bounty,” “Always,” “Gillette,” and “Oral-B,” just to name a few.
As I mentioned earlier, consumers don’t mind paying more for brand-name items. As a global leader in 10 consumer goods product categories, Procter & Gamble makes considerably more profits than most of its competitors.
Those profits are also stable and durable. Even in a recession, we would still need to brush our teeth and do our laundry, meaning the demand stays consistent for the company’s products. That’s why despite our economy going through numerous ups and downs over the past 128 years, Procter & Gamble never missed a single dividend payment.
Other than being recession-proof, PG stock could also be future-proof. The reason is simple: even when driverless cars, space drones, and advanced artificial intelligence all become reality, I’m pretty sure we’ll still be buying toothpaste, laundry detergent, and paper towels.
In other words, Procter & Gamble serves as the perfect example of why boring businesses can be of tremendous value to dividend investors.
Procter & Gamble Co: Growing Financials
Based on the downturn in PG stock, you might think business at the company must be slowing down. But that isn’t really the case. In fact, despite being well over 100 years old, Procter & Gamble is still churning out growing sales and profits.
In the third quarter of P&G’s fiscal year 2018, ended March 31, 2018, the company generated net sales of $16.3 billion, up four percent year-over-year. Core earnings came in at $1.00 per share, also representing a four-percent increase from the year-ago period. (Source: “P&G Announces Third Quarter Earnings,” Procter & Gamble Co, April 19, 2018.)
Note that the company’s core earnings of $1.00 per share easily covered its $0.6896 of dividend per share declared for the quarter.
Trading at $77.53 apiece, PG stock offers an annual dividend yield of 3.7%.
The Bottom Line on PG Stock
At the end of the day, you can find stocks with higher yields. But keep in mind that right now, the average dividend yield of all S&P 500 companies is just 1.8%. Therefore, investors purchasing PG stock today can lock in a yield more than double the benchmark’s average.
Most recently, the market has also started to warm up to this consumer staples company again. In just the last month alone, PG stock bounced back nearly six percent. Because dividend yield moves inversely to share price, investors who want to collect Procter & Gamble’s oversized dividends may want to take action before the next rally.