The Procter & Gamble Co (NYSE:PG), together with its subsidiaries, manufactures and sells branded consumer packaged goods. The company operates through five segments: Beauty, Grooming, Health Care, Fabric Care and Home Care, and Baby Care and Family Care. This dividend king has paid dividends since 1891 and has managed to increase them for 60 years in a row.
The company’s latest dividend increase was announced in April 2016 when the Board of Directors approved a 1% increase (1) in the quarterly dividend to 66.95 cents/share. The company’s peer group includes Colgate-Palmolive Company (NYSE:CL), Kimberly Clark Corp (NYSE:KMB) and Unilever plc (ADR) (NYSE:UL).
Over the past decade this dividend growth stock has delivered an annualized total return of 6%/year to its shareholders.
The company has managed to deliver an anemic 2.80% average increase in annual EPS over the past decade. Procter & Gamble is expected to earn $3.89 per share in 2017 and $4.21 per share in 2018. In comparison, the company earned $3.49/share in 2016.
Procter & Gamble also has managed to reduce the number of shares outstanding. Since the acquisition of Gillette closed in 2006, the number of shares declined from 3,286 million to 2,822 million in 2016.
The company strives to generate cost savings, tries to grow through innovation and through acquisitions, while carefully managing its cash flow in order to pay dividends and buy back stock consistently.
Procter & Gamble Co (NYSE:PG) also owns strong brand names, which allow it to maintain pricing power, in order to be able to pass price increases on to consumers. The company is the leader is segments such as blades and razors, feminine care, and baby products. Recent events included the shedding of over 100 brands, designed to allow management to be more focused on its best performing products. In addition, management is focused on lowering costs for the company.
The sheer scale of its massive operations and broad geographic reach ensure that the company is able to generate consistent revenue streams. Its scale, diversity of products, and the fact that it’s a leader in most of its categories with a global reach are definite advantages, which is why I believe the company to have a wide moat. When you have scale, per unit costs for your products are lower than competitors.
The company might have stumbled as of the past few years, as evident by the lack of much earnings per share growth (2) since 2008. The company lost a little bit of focus, and needs to keep driving innovation and win more consumers to engage in repeated purchases of its products. The risk to it includes consumers looking for more value, and switching to cheaper alternatives. The new Procter & Gamble would be nimbler, and more focused on a smaller number of brands.