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The Procter & Gamble Company (PG): Why This Stock Has High Dividend and Revenue Potential

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The Procter & Gamble Company (NYSE:PG)The Procter & Gamble Company (NYSE:PG) is a leading consumer product company. The company operates in beauty, grooming, health care, fabric care, home care, baby care and family care. Not only its vast diversification, but also its huge geographical spread make it a common household name. Let us see how the company is expanding and how it will prove to be a good investment opportunity.

Financials

In terms of financial fundamentals, the company has a strong income statement and cash flow. There has been a steady rise in revenue over the years. Further, the company’s EBITDA margin has been stable at around 24%. The company also has had positive operating and free cash flow over the years. This has helped the company strengthen its liquidity position over the years, and this translates into steady returns for shareholders. At the same time, a significantly high capital expenditure by the company will translate in to future returns.

9months ended March
Parameters 2012 2011 2010 2009 2013 2012
Revenue 83680 81104 77567 76694 63512 63468
Growth in revenue 3% 5% 1% 0%
EBITDA 19124 18333 18840 18,456 15024 13027
EBITDA Margin 23% 23% 24% 24% 24% 21%
DPS 2.14 1.97 1.8 1.64 0.562 0.525
OCF 13284 13330 16131 14919 10481 9311
Capital expenditure 3964 3306 3067 3238 2426 2663
FCF 9320 10024 13064 11681 8055 6648

The Procter & Gamble Company (NYSE:PG) is a company that believes in returning capital to its shareholders. P&G announced a dividend of $0.6015 per share for the second quarter. The company history shows that P&G has returned $88 billion to its shareholders with $42 billion in dividends and $46 billion as share repurchase. The current dividend yield is attractive at 3%. The company has been paying dividends for 122 consecutive years since 1890 and has increased its dividend from the past 56 years. Given the reasons discussed below, dividends will continue to flow for shareholders.

Innovative P&G

The Procter & Gamble Company (NYSE:PG) launched three of the top ten most successful new products in 2012. Crest Complete Multi Benefit as fifth, Febreze CAR Vent Clips placed eight and Olay Body Collection ranked ninth. One of the recent innovations of P&G is in the laundry segment. It was the introduction of detergent pods, which are easier to use, create less waste and have less potential for a mess. With the introduction of these “unit dose” products, total sales of laundry fell by 2.1% in U.S. This innovation has profited The Procter & Gamble Company (NYSE:PG), which is now selling more than $4.5 billion in laundry industry in North America annually.

Developing market business

There has been a strong growth for P&G in developing nations. It is a $32 billion business for P&G now, with around 38% of the company’s revenue and 44% of its unit volume generated from emerging markets.

Some of the countries that have contributed significantly to the company’ profits are Brazil, Russia, India and China. There has been a 27% compounded annual growth in revenue in India and 25% in Russia with China being the greatest contributor to the sales.

In developing nation such as India, The Procter & Gamble Company (NYSE:PG) is all set to establish its toothpaste brand Oral B Pro health against its biggest competitor Colgate. To achieve its aim the company has used a popular Indian actress Madhuri Dixit to endorse the product. Aggressive expansion in both urban and rural areas can lead to an increase in the market share of the company.

Peer comparison

Procter & Gamble is a leader as far as market sales in developing nations is concerned. The graph shows that The Procter & Gamble Company (NYSE:PG) generates around $33-34 billion of its sales from developing markets, whereas Unilever plc (ADR) (NYSE:UL) and Colgate-Palmolive Company (NYSE:CL) have market sales of $23 billion and $10 billion, respectively.

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