Procter & Gamble Co (NYSE:PG): The Ultimate “Buy and Hold” Investment
Own PG Stock for Peace of Mind–and for Rising Dividends
People like Procter & Gamble Co (NYSE:PG) stock for many different reasons. It’s one of the blue-chip companies that have been providing consistent returns to shareholders for decades. And in recent years, the stock has surged quite a bit. For income investors, though, the reason to own PG stock is simple: the company helps put your portfolio on cruise control. Let me explain.
In this day and age, investors are constantly under information overload. Unless you go off the grid, there is simply no way to avoid all the news headlines that are being pumped out 24/7. And some of those headlines, like a company earnings miss or a bad jobs report, could lead to movements in the stock market. This kind of information often makes investors reconsider their current positions. “Should I sell the stock after its earnings miss?” “Should I move the money to the up-and-coming sector?” The information overload makes it that much harder for investors to stick to the “buy and hold” strategy.
It’s even worse during market downturns. Imagine this: it was October 2008 and the Dow Jones Industrial Average had closed lower for five consecutive trading sessions, plunging a total of 1,874 points, or 18%. The S&P 500 Index tumbled more than 20%. Everyone was panicking. Many were selling their shares.
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Now, what does this have to do with Procter & Gamble? Well, because even in a time as bad as 2008, there’s little need for income investors of PG stock to reconsider their positions. The company was still making handsome profits quarter after quarter and in 2008, raising its quarterly dividend rate from $0.35 per share to $0.40 per share, representing a 14.3% increase. (Source: “Splits & Dividend History,” Procter & Gamble Co, last accessed November 1, 2017.)
And in early 2009, Procter & Gamble announced another double-digit increase to its quarterly dividend rate to $0.44 per share. For investors who were counting on their portfolio to provide a stream of income, Procter & Gamble’s solid financial performance and consistent dividend hikes gave them a peace of mind.
Thanks to this peace of mind, investors who held on to their PG shares were rewarded big time when markets started to recover. Not only did the company’s share price surge well above its pre-financial crisis level, but it also continued to reward shareholders with increasing dividends.
The latest dividend hike, which was announced this April, marked the 61st consecutive year that Procter & Gamble has raised its payout. (Source: “P&G Declares Dividend Increase,” Procter & Gamble Co, April 11, 2017.)
But to be honest, PG stock’s excellent track record shouldn’t come as a surprise. The company is deeply entrenched in the consumer staples business. Many of its brands, such as “Bounty,” “Crest,” “Febreze,” “Gillette,” “Tide,” and “Oral-B,” have become household names. When it comes to choosing personal care products, consumers are willing to pay the premium for trusted brand names. With some of the most well-known brands in the category, Procter & Gamble managed to earn a core operating margin of 22.1% in the most recent fiscal year, one of the highest in its industry. (Source: “Fiscal 2017 Highlights,” Procter & Gamble Co, last accessed November 1, 2017.)
Furthermore, the consumer staples business is also known to be recession-proof. When the economy enters a downturn and people’s disposable income shrinks, consumers may postpone their plans to buy new cars, but toothpaste and laundry detergent would still be on most households’ shopping lists.
By running a recession-proof business, Procter & Gamble can provide generous payouts to shareholders through thick and thin. With 61 consecutive years of annual dividend increases, the company has one of the longest track records of dividend hikes of any dividend stock.
Of course, as I always say, past performance does not guarantee future results. But for Procter & Gamble, the company’s astonishing track record could very well continue. That’s because despite being a century-old business, Procter & Gamble is still growing.
In the company’s fiscal year 2017, which ended June 30, 2017, Procter & Gamble generated net sales of $65.1 billion. Excluding the impact from foreign exchange, organic sales grew two percent, driven by an increase in shipment volume. (Source: “P&G Announces Fourth Quarter and Fiscal Year 2017 Results,” Procter & Gamble Co, July 27, 2017.)
The bottom line improved as well. For the fiscal year 2017, P&G’s core earnings came in at $3.92, representing a seven-percent increase from the prior year. Excluding the impact of foreign exchange, constant currency core earnings per share would have increased by 11%.
Given that P&G paid total dividends of $2.6981 per share during the fiscal year, the company achieved a payout ratio of 68.8%, leaving plenty of room for future dividend increases.
Bottom Line on PG Stock
In the hustle and bustle of modern day stock investing, Procter & Gamble provides something truly special: peace of mind. Investors can simply buy some PG shares, hold on to them, and collect rising dividend checks in the mail year after year. It removes the burden of making decisions when an unexpected headline shows up on the news feed.
Better yet, if you don’t need to spend the cash right way, you don’t even have to decide on what to do with the company’s dividends. Procter & Gamble offers a direct stock purchase plan (DSPP), which allows investors to automatically reinvestment their cash dividends into additional shares of PG stock. As I discussed in an earlier column, reinvesting dividends into solid dividend-paying companies unlocks the power of compounding and can significantly boost portfolio return in the long term. Investors interested in this option can visit the website of Procter & Gamble’s transfer agent, Wells Fargo Shareowner Services.