Up to date on October twenty third, 2024 by Felix Martinez
The Dividend Kings are extensively often known as a bunch of dividend development shares to purchase and maintain for the long-term.
These corporations have generated robust income yr after yr, even throughout recessions, and have proved their capability to develop earnings steadily over a few years. The Dividend Kings are a bunch of corporations with 50+ consecutive years of dividend will increase.
You may see all 53 Dividend Kings right here.
You may as well obtain an Excel spreadsheet with the complete listing of Dividend Kings (plus metrics that matter, comparable to price-to-earnings ratios and dividend yields) by clicking the hyperlink beneath:
Up subsequent in our annual Dividend Kings In Focus collection is client merchandise behemoth Procter & Gamble (PG), which has paid dividends for 133 years and grown its dividend for 68 consecutive years.
Procter & Gamble is among the best-known dividend shares, largely as a consequence of its extraordinarily lengthy dividend historical past and extensively recognizable manufacturers.
Years in the past, P&G accomplished a serious overhaul of its product portfolio, together with a major divestment of manufacturers not deemed needed.
This text will talk about P&G’s portfolio transformation, future development prospects, and inventory valuation.
Enterprise Overview
Procter & Gamble is a client merchandise big that sells its merchandise in additional than 180 nations and generates roughly $82 billion in annual gross sales. Its core manufacturers embody Gillette, Tide, Charmin, Crest, Pampers, Febreze, Head & Shoulders, Bounty, Oral-B, and lots of extra.
Throughout P&G’s huge portfolio restructuring over the previous few years, the corporate bought off dozens of its client manufacturers.
Asset gross sales lately embody battery model Duracell to Berkshire Hathaway (BRK-A) (BRK-B) for $4.7 billion and a group of 43 magnificence manufacturers to Coty (COTY) for $12.5 billion.
In the present day, P&G has slimmed down to only 65 manufacturers, from 170 beforehand. And these manufacturers have been gaining international market share at a wholesome price over the previous few years.
Supply: Investor Presentation
The corporate operates in 5 reporting segments based mostly on the next product classes:
- Material & House Care
- Child, Female, & Household Care
- Magnificence
- Well being Care
- Grooming
Development Prospects
Following P&G’s restructuring, the corporate is now a extra agile and versatile group with improved development prospects. Whereas P&G divested low-margin companies with restricted development potential, it held on to its core client manufacturers, comparable to Tide, Charmin, Pampers, Gillette, and Crest, which have robust development potential.
As well as, P&G acquired billions of {dollars} from its quite a few asset gross sales and spent a portion of the proceeds on share repurchases. These share repurchases have contributed to the expansion of earnings per share over time.
Margin growth is a serious element of P&G’s earnings development technique. P&G’s cost-cutting efforts have enhanced its working margins and after-tax revenue margins. Due to its robust manufacturers, P&G has the power to lift costs even in an inflationary surroundings. It has thus applied a number of worth hikes over the past two years, offsetting the adverse impact of value inflation on its margins.
As a part of the restructuring, P&G launched an enormous cost-cutting effort. By headcount discount and decrease SG&A bills, it reduce prices by $10 billion over the course of the restructuring.
On the similar time, the give attention to premier manufacturers with pricing energy has resulted in constant gross sales development:
Supply: Investor Presentation
The corporate reported its fiscal yr 2025 first-quarter outcomes, exhibiting web gross sales of $21.7 billion, a 1% decline from the earlier yr. Nonetheless, natural gross sales, which exclude international alternate and acquisition impacts, elevated by 2%. Diluted earnings per share (EPS) dropped 12% to $1.61 as a consequence of larger restructuring prices, whereas core EPS rose 5% to $1.93. Working money move stood at $4.3 billion, and the corporate returned $4.4 billion to shareholders by way of dividends and share repurchases.
We’re forecasting 5% annual earnings-per-share development over the subsequent 5 years.
Aggressive Benefits & Recession Efficiency
P&G has a number of aggressive benefits. The primary is its robust model portfolio, which incorporates a number of manufacturers with annual gross sales in extra of $1 billion.
These and different core manufacturers additionally maintain management positions of their respective classes. These merchandise are related to top quality, and therefore, shoppers are keen to pay a premium for them.
The corporate invests closely in promoting to retain its aggressive place, which it will possibly do due to its monetary energy. It additionally invests closely in analysis and improvement. This funding is a aggressive benefit for P&G; R&D fuels product innovation, whereas promoting helps market new merchandise and acquire share.
P&G’s aggressive benefits enable the corporate to stay worthwhile even during times of recession. Earnings held up remarkably effectively in the course of the Nice Recession:
- 2007 earnings-per-share of $3.04
- 2008 earnings-per-share of $3.64 (19.7% enhance)
- 2009 earnings-per-share of $3.58 (-1.6% decline)
- 2010 earnings-per-share of $3.53 (-1.4% decline)
As is clear from the above, P&G had a really robust yr in 2008, with almost 20% earnings development. Earnings dipped solely mildly within the following two years. This was a robust efficiency in one of many worst financial downturns up to now a number of many years.
P&G additionally carried out very effectively in 2020, as shoppers nonetheless wanted private care and family merchandise in the course of the coronavirus pandemic. The patron merchandise big grew its earnings per share by 13% in 2020 to a brand new all-time excessive, and it has since been rising.
Total, P&G’s enterprise mannequin is recession-resistant. Everybody wants paper towels, toothpaste, razors, and different P&G merchandise, whatever the financial local weather.
Valuation & Anticipated Returns
Primarily based on our expectation of earnings per share of $6.98 for fiscal 2025, P&G is at present buying and selling at a ahead price-to-earnings ratio of 24.3.
Our honest worth estimate for P&G is a price-to-earnings ratio of 20. As such, shares seem overvalued. If the price-to-earnings ratio of P&G reverts to twenty.0 over the subsequent 5 years, the inventory will incur a -4.0% annualized valuation headwind.
Earnings development and dividends will assist offset the affect of a contracting price-to-earnings a number of. For instance, we count on P&G to generate 5.0% annual earnings development every year, and the inventory has a present dividend yield of two.4%. Given all these figures, the inventory has a complete return potential of three.4% per yr over the subsequent 5 years.
That mentioned, P&G continues to attraction as a dividend development inventory. The present dividend payout is well-covered by earnings, as evidenced by a wholesome payout ratio of 58%, and therefore, the dividend has ample room to continue to grow.
Traders ought to count on P&G to proceed elevating its dividend yearly for a few years. It has the model energy, aggressive benefits, and profitability to take care of its regular annual dividend raises over the long run.
Last Ideas
P&G has many robust qualities that make it a time-tested dividend development firm. Due to a major reshuffling of its model portfolio years in the past, P&G positioned itself to capitalize on international development alternatives.
P&G has an extended historical past of rewarding shareholders with dividends. Due to its lengthy historical past of annual dividend hikes, P&G has earned a spot on our listing of “blue chip” shares.
You may see the complete listing of blue chip shares right here.
Nonetheless, the present valuation leaves one thing to be desired from a price perspective. Whereas we stay enthused concerning the ongoing development of the enterprise, we don’t discover shares to be enticing sufficient to purchase right now.
The next articles include shares with very lengthy dividend or company histories, ripe for choice for dividend development buyers:
Thanks for studying this text. Please ship any suggestions, corrections, or inquiries to [email protected].
