Procter & Gamble Co: Why I’m Sticking With This Blue-Chip Dividend Stock
December 3, 2018
PG Stock Hits All-Time High
This past summer, when everyone clamored for cryptocurrencies and tech companies, I vowed to hang on to my stodgy dividend stocks.
I’m glad I did.
Jumping into each new fashion on Wall Street rarely pays off. And while I don’t get too caught up in quarter-to-quarter results—I think about my investment returns over decades, not months—the rebound in dividend stocks underscores exactly why I believe in this strategy.
Case in point: Procter & Gamble Co (NYSE:PG). Since bottoming out at $70.73 in May, shares of PG stock have returned 30%, including dividends, closing in on a fresh 52-week high of $94.81.
Despite ongoing industry headwinds, I’m happy to continue holding PG shares in my Automated Income model portfolio for paid subscribers. Here’s why.
Procter & Gamble Co: Turnaround Efforts Bearing Fruit
PG stock constitutes one of the most reliable dividend payers around. It’s also one of the most predictable.
In Procter & Gamble’s first-quarter conference call in October, management pledged to pay out $7.0 billion in dividends and repurchase $5.0 billion in stock. That is a big increase from the company’s payout policy during the 2018 fiscal year.
Of course, those dividend hikes depend upon future profits and cash flows. They also still need to get the green light from the board. But management would not have raised shareholders’ hopes unless they were sure they could deliver.
The company also seems to be emerging from a sales funk. New competition, higher costs, and a consumer shift toward smaller brands have dogged P&G’s financial results over the past few years. But last quarter, the company reported that organic sales—a closely watched metric that strips out acquisitions, divestitures, and currency fluctuations—rose four percent year-over-year.
More importantly, P&G saw revenue across most of its categories (including shaving razors, healthcare, and laundry detergent), signaling that its recent turnaround efforts have started to show results.
Investors loved the quarter, sending shares soaring 8.3% to $87.00 after the report hit the newswire. Many analysts interpret the numbers as a sign that the consumer products giant may be entering a period of more robust growth. (Source: “P&G Announces Fiscal Year 2019 First Quarter Results,” Procter & Gamble Co, October 19, 2018.)
To keep those strong results rolling in, the company plans to revamp its business structure. According to Chief Executive Officer David Taylor, these initiatives will help reorganize his management team.
Specifically, Taylor plans to cut the number of business units down to six from 10. He also wants to give his regional sales teams more autonomy rather than leaving decisions to a distant headquarters in Ohio. The plan to streamline operations, which will go into effect next July, is part of a wider effort to create a more agile business that can respond faster to change. (Source: “P&G Moves to Streamline Its Structure,” The Wall Street Journal, November 8, 2018.)
Chart courtesy of StockCharts.com
The Bottom Line on PG Stock
PG stock isn’t without its faults, of course.
New, nimbler competition could continue to nip away at the company’s market share. Higher commodity costs could also bite into P&G’s profitability, as evidenced by the lower profit margins reported last quarter.
But that’s a chance I’m willing to take given Procter & Gamble’s rebounding sales and proven commitment to rewarding shareholders with dividend hikes. PG stock has a lot more upside ahead.
