Up to date on September 18th, 2023 by Aristofanis Papadatos
The Dividend Kings are extensively referred to as a bunch of dividend development shares to purchase and maintain for the long-term.
These firms have generated robust earnings yr after yr, even throughout recessions, and have proved their capacity to develop earnings steadily over a few years. The Dividend Kings are a bunch of firms with 50+ consecutive years of dividend will increase.
You possibly can see all 50 Dividend Kings right here.
You can too obtain an Excel spreadsheet with the total listing of Dividend Kings (plus metrics that matter, similar to price-to-earnings ratios and dividend yields) by clicking the hyperlink beneath:
Up subsequent in our annual Dividend Kings In Focus collection is shopper merchandise behemoth Procter & Gamble (PG), which has paid dividends for 133 years. The corporate has additionally grown its dividend for 67 consecutive years.
Procter & Gamble is likely one of the most well-known dividend shares, largely because 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 vital.
This text will focus on P&G’s portfolio transformation, future development prospects, and inventory valuation.
Enterprise Overview
Procter & Gamble is a shopper merchandise large that sells its merchandise in additional than 180 international locations 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 large portfolio restructuring over the previous few years, the corporate offered off dozens of its shopper 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.
Right this moment, P&G has slimmed down to simply 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 shopper manufacturers, similar 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 development 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. Even in an inflationary atmosphere, P&G has the power to lift costs, because of its robust manufacturers. It has thus applied a number of value hikes during the last two years and therefore it has offset the unfavourable impact of price inflation on its margins.
As a part of the restructuring, P&G launched an enormous cost-cutting effort. It lower prices by $10 billion over the course of its restructuring via headcount discount and decrease SG&A bills.
On the identical time, the concentrate on premier manufacturers with pricing energy has resulted in constant gross sales development:
Supply: Investor Presentation
Within the 2023 fiscal yr, the corporate generated $82 billion in gross sales, a 2.5% improve in comparison with FY 2022, as natural gross sales grew 7%.
This end result featured natural gross sales development of 11%, 8%, 5%, 8%, and 9% within the firm’s Magnificence, Grooming, Well being Care, Material & House Care, and Child, Female & Household Care segments, respectively.
Adjusted earnings-per-share edged as much as a brand new all-time excessive of $5.90, a 2% improve in comparison with $5.81 in 2022.
Procter & Gamble additionally offered fiscal 2024 steering, anticipating 4%-5% gross sales development and 6%-9% development of adjusted earnings-per-share.
We’re forecasting 5% annual earnings-per-share development over the following 5 years.
Aggressive Benefits & Recession Efficiency
P&G has a number of aggressive benefits. The primary is its robust model portfolio. P&G has a number of manufacturers that generate annual gross sales in extra of $1 billion.
These and different core manufacturers maintain management positions of their respective classes as effectively. These merchandise are related to top quality and therefore customers are keen to pay a premium for them.
The corporate invests closely in promoting to retain its aggressive place, which it will probably do because of its monetary energy. It additionally invests closely in analysis and growth. This funding is a aggressive benefit for P&G; R&D fuels product innovation, whereas promoting helps market new merchandise and achieve share.
P&G’s aggressive benefits enable the corporate to stay worthwhile even in periods of recession. Earnings held up remarkably effectively through the Nice Recession:
2007 earnings-per-share of $3.04
2008 earnings-per-share of $3.64 (19.7% improve)
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 really robust efficiency in one of many worst financial downturns up to now a number of a long time.
P&G additionally carried out very effectively in 2020, as customers nonetheless wanted private care and family merchandise through the coronavirus pandemic. The patron merchandise large grew its earnings per share 13% in 2020, to a brand new all-time excessive.
Total, P&G has a recession-resistant enterprise mannequin. Everybody wants paper towels, toothpaste, razors, and different P&G merchandise, whatever the financial local weather.
Valuation & Anticipated Returns
Primarily based on our expectation for earnings-per-share of $6.40 for fiscal 2024, P&G is at the moment buying and selling at a ahead price-to-earnings ratio of 23.9.
Our truthful 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 following 5 years, the inventory will incur a -3.5% 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.5%. Given all these figures, the inventory has a complete return potential of three.9% per yr over the following 5 years.
With that mentioned, P&G continues to have attraction as a dividend development inventory. The present dividend payout is well-covered by earnings, as evidenced by a wholesome payout ratio of 59%, 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 to return. It has the model energy, aggressive benefits, and profitability to keep up 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. Because of a major reshuffling of its model portfolio years in the past, P&G positioned itself to capitalize on international development alternatives.
P&G has a protracted historical past of rewarding shareholders with dividends. For its lengthy historical past of annual dividend hikes, P&G earns a spot on our listing of “blue chip” shares.
You possibly can see the total listing of blue chip shares right here.
Nonetheless, the present valuation leaves one thing to be desired from a worth perspective. Whereas we stay enthused concerning the ongoing development of the enterprise, we don’t discover shares to be engaging sufficient to purchase right now.
The next articles include shares with very lengthy dividend or company histories, ripe for choice for dividend development buyers:
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