When it comes to dividend-raising streaks, few companies can match The Procter & Gamble Company (NYSE: PG). Its 65-year streak of annual increases is a remarkable achievement that has put this stock on the radar of many performance-oriented investors. In this article, we’ll take a look at the most important dividend factors, including growth, volatility, and hedge.
With a dividend history spanning over a century and growing for over 50 years, the company is owned by an elite group of dividend kings.
This has been accomplished through the continued pursuit of excellence, innovation and astute marketing. The end result is a strong brand with higher profit margins than the industry.
A 2.4% return is not the highest, but investors can rely on the long payment history. The company also repurchased shares during the year, which was equivalent to around 2.7% of the company’s market capitalization at the time. When buying stocks for their dividends, you should always perform the checks below to see if the dividend looks sustainable.
Explore this interactive graph for our latest analysis on Procter & Gamble!
Companies (usually) pay dividends on their profits. Therefore, we should always research whether a company can afford its dividend, measured as a percentage of its after-tax net income.
Last year, Procter & Gamble paid out 57% of its profits as dividends. This is a healthy payout ratio, and while it limits reinvestment in the business, there is also the potential to increase the payout ratio over time.
Another important check that we perform is to see if the free cash flow generated is sufficient to pay the dividend. Procter & Gamble paid out 53% of its cash flow as dividends last year, which is within a reasonable range for an average business.
It’s positive to see Procter & Gamble’s earnings and cash flow cover the dividend as this is usually a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before that. the dividend is not cut.
Be sure to check out our latest analysis on Procter & Gamble’s financial condition.
Procter & Gamble has been paying dividends for over a century, but we’re only looking at the last 10 years of payouts for this analysis.
During this period, the dividend has been stable, which could mean that the company could have relatively constant profit power. For the past 10 years, the first annual payment was US $ 1.9 in 2011, compared to US $ 3.5 last year. Dividends per share have increased by approximately 6.1% per year during this period.
Companies like this, which increase their dividend at a decent rate, can be valuable in the long run, if the rate of growth can be sustained.
Potential for dividend growth
While dividend payouts have been relatively reliable, earnings per share (EPS) is just as important as it is essential to maintaining dividend purchasing power over the long term.
Income has grown by around 9.7% per year over the past five years. The earnings growth rate is quite decent, and by paying over half of its earnings as dividends, the company strikes a reasonable balance between reinvestment and return to shareholders.
Overall, the company passes our 3-step dividend checklist. Its dividend is affordable, there is a record of consistent payouts, and the dividend can increase even in the face of potential turbulence.
All in all, Procter & Gamble is the quintessential dividend growth stock. However, while the stock has returned to all-time highs, buying at such a valuation can be difficult to justify. Especially after our intrinsic value analysis indicated that the stock may be overvalued at this time.
Nonetheless, given the quality and track record of the company, it deserves an honorable place on the watch list for any return-oriented investor.
Companies with a stable dividend policy are likely to benefit from greater investor interest than those with a more inconsistent approach. Still, there are a host of other factors that investors need to consider, aside from dividend payments, when analyzing a business. For example, we have selected 2 warning signs for Procter & Gamble that investors should be aware of before committing capital to this stock.
Looking for more high yield dividend ideas? Try our curated list of dividend-paying stocks with a yield above 3%.
Simply Wall St analyst Stjepan Kalinic and Simply Wall St have no positions in any of the companies mentioned. This article is general in nature. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents.
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