Friday, April 13, 2012

Procter & Gamble Increases Dividend

Today Procter & Gamble (PG) announced it has increased the quarterly dividend 7.05% to $.562 per share.  Amazingly this increase represents 56 consecutive years of dividend growth.  This is one of the longest streaks you'll find anywhere.  The baseline I look for in dividend growth stocks is a 3% yield with increases averaging 7%.  PG's increase meets this objective and handily beats inflation.  Based on the new dividend, PG's payout ratio is 66.5% which is a little higher than I'd like.  I use many Procter and Gamble products including Gillete razors, shaving cream, deodorant, and body wash; Gain dish soap and laundry detergent, Mr. Clean cleaning sprays and floor cleaner; Pert Plus shampoo, Crest toothpaste, Oral-B toothbrushes, Charmin toilet paper; Duracell batteries; and Pringles snacks (which will be sold to the Kellog company).  I own this company because I use many of the products it makes, plus I like it as a dividend growth stock.


  1. PG is doing a good job with dividend increases. I own it too, albeit not its a minor holding in the portfolio. What concerns me is the high leverage the company uses. With goodwill removed the Debt/Equity ratio is > 4, which is quite risky by my own perseption.
    Free Cash Flow is hardly moving up while CAPEX and dividends are increasing. It is unlikely for PG to suffer in a meaningful way, but I do not see a catalyst for either dividend hikes nor price appreciation and hence have been sitting on the sidelines.

    Almost the same pressures are experienced by JNJ, with input costs moving higher and product prices hardly increasing due to tough economy. At least JNJ has a better balance sheet.

  2. I agree with what you say, I don't anticipate large dividend growth from either PG or JNJ right now. Both companies are stable with dividend friendly cultures however.

    I think PG has put itself in a precarious situation. I absolutely love the products PG makes but they are expensive. The prices they charge for Tide laundry soap and Fusion razor blades are borderline rediculous. If they try to raise the price anymore they will lose a lot of customers. Competition is also catching up. I remember when the Fusion razor blade was unquestionably the best in the market. Newer products such as Shick Hydro 5 are actually pretty good. I hate to admit this, but I do buy Hydro 5 razors. I can buy a 4pack for $8 instead of $22 for the Fusion (I still buy the Fusion sometimes). I get excited when I buy products made by the stocks I own, passing over the Fusion blades stings a little bit. I have noticed PG has a new hair trimmer/groomer which looks promising. I might have to buy one just to see.

  3. What worries me the most is PG goodwill. It already decreased its profit at Q4. And I dont like that its liquidity ratio is below 1. Will take a look at J&J at Q1.