In a previous article, I had talked about News Corp, the top position of famous investment manager Donald Yacktman. He not only loves the entertainment business, but he also loves the consumer business. His second and third biggest positions were global giant consumer companies.
They were The Procter & Gamble Company (NYSE:PG) and PepsiCo, Inc. (NYSE:PEP) P&G was the second biggest holding, with more than 27.7 million shares, accounting for 11.3% of his portfolio. In this post, I will take a closer look at P&G to see whether or not investors should follow Donald Yacktman into the stock.
Global brands in 180 countries
The majority of its net sales, or 32% of total sales, were generated from the Fabric Care and Home Care segment. The Beauty segment ranked second, accounting for 24% of total sales. The Fabric Care and Home Care segment was also the biggest earnings contributor, generating 26% of total earnings, while the Beauty segment represented 22% of total 2012 earnings.
The Procter & Gamble Company (NYSE:PG) has experienced decent growth and has increased its dividend in the past ten years. While revenue increased from $43.4 billion in 2003 to $83.7 billion in 2012, net income rose from $5.2 billion to $10.75 billion during the same period. P&G has consistently grown its dividend over the years, from $0.82 per share in 2003 to $2.41 per share in 2012.
Bill Ackman accumulated big stake in The Procter & Gamble Company (NYSE:PG)
In July last year, Bill Ackman, a well-known activist investor, revealed his fund’s stake of around 1% in P&G. Ackman invested in P&G at around $62 per share, at 16 times earnings. He thought that it was a historically low multiple on depressed earnings. Indeed, as the company had more sales in the developed markets, which have been struggling with the economic slowdown, P&G’s earnings has been depressed while its main competitor Unilever plc (ADR) (NYSE:UL) has been moving forward aggressively.
Unilever plc (ADR) (NYSE:UL) focuses more on the developing markets, with 55% of the total revenue being generated from the emerging markets, whereas only 37% of total P&G’s sales derived from emerging markets. With the more decentralized structure, Unilever could adjust quickly to local demands while it takes longer for P&G to adapt to the changes in local markets with a more centralized structure.
Both offer good yields but are not cheap
However, at $62 per share when Ackman purchased The Procter & Gamble Company (NYSE:PG), it was a bargain price for a great business that was turning around. Ackman has made a nice return on his P&G investment. P&G is trading around $78 per share, a sweet 25.8% capital gain compared to his original investment in the company. At this price, P&G is worth more than $213 billion on the market. The market values P&G at 17.9 times its forward earnings and 12.3 times its EV/EBITDA. Getting in P&G at its current price, investors could get a decent dividend yield of around 2.9%. Unilever plc (ADR) (NYSE:UL) is trading at around $42 per share, with a total market cap of $118.8 billion. The market values Unilever at a higher valuation than P&G, at 18.2 times forward earnings and 12.1 times EV/EBITDA. Income investors might love Unilever more with its higher dividend yield at 3.1%.
Another giant peer in the consumer good with a decent dividend yield is Colgate-Palmolive Company (NYSE:CL), the global leader in toothpaste and toothbrush. At $119 per share, Colgate-Palmolive is worth around $55.6 billion. The market also values the company at double digit valuations, at 18.8 times forward earnings and 13.4 times EV/EBITDA. Income investors would also love this company, as it has kept raising dividends for the past 10 years, from $0.9 per share in 2003 to $2.44 per share in 2012. At its current trading price, the dividend yield stays at 2.1%.
The Foolish bottom line
With the global leading consumer brands, The Procter & Gamble Company (NYSE:PG), Unilever plc (ADR) (NYSE:UL) and Colgate-Palmolive Company (NYSE:CL) could fit well in the long-term investment portfolios. In addition, income investors could get decent dividends, which could be expected to keep increasing in the future.
Anh HOANG has no position in any stocks mentioned. The Motley Fool recommends Procter & Gamble and Unilever.
