This consumer products company beat earnings estimates by $0.21 last quarter. It has a current annual dividend yield of 2.23%, paid quarterly.
The Procter & Gamble Company (PG)
From DRIP Investor
Procter & Gamble was an original member of the Editor’s Portfolio when I began writing DRIP Investor in 1992. The stock was selling at a split-adjusted price of around $12 in 1992, so the stock has been a decent performer over the last 28 years, especially when you consider the compounding impact from a decent dividend stream.
But it has not always been a one-way street for P&G. As happens for many companies, the stock has experienced its share of lulls, the latest being sideways trading action from 2013 through mid-2018. The company was having trouble showing meaningful organic growth, which provided little appeal save for the decent dividend yield. However, since bottoming at around $72 per share in April 2018, the stock has been on a tear, nearly doubling and far outpacing the performance of the S&P 500 Index over that time period.
What has changed for P&G? In a word—growth. Now, nobody is confusing P&G with a tech stock. However, the company has been putting up very nice growth numbers in recent quarters. In the most recent quarter, sales rose 9% to $19.3 billion, beating the estimate of $18.4 billion. Per-share profits increased 20% to $1.63, easily outpacing the consensus earnings estimate of $1.42. Perhaps most impressive was the 9% organic sales growth for the quarter.
The company continues to get a boost from the Covid pandemic and demand for cleaning products. Organic growth was evident in every product line. Fabric & Home Care posted a 14% increase in organic sales. Dish Care, Air Care, and Surface Care products each grew 20% or more in the quarter. Health Care saw 12% organic sales growth and was fueled by Oral Care products. The slowest business was Baby, Feminine, and Family Care, although this segment still posted 4% growth in organic sales.
Procter & Gamble must expect the sales momentum to continue, as the firm raised its outlook for fiscal 2021 from a range of 1% to 3% sales growth to 3% to 4% and boosted its organic sales growth projections from 2% to 4% to a range of 4% to 5%. The company also raised guidance for core earnings per share growth to a range of 5% to 8% for the fiscal year.
To be sure, Procter & Gamble is not a cheap stock. These shares trade for 25 times the fiscal 2021 earnings estimate of $5.57 per share. Thus, the stock is vulnerable to a sell-off should future growth numbers disappoint, or investors move away from Covid plays as the virus abates over time. Still, the company’s operating momentum, not to mention the stock’s dividend yield give these shares plenty of appeal for investors. I would expect the stock to at least match the market return for the remainder of the year, and I remain positive on the stock’s long-term prospects.
Procter & Gamble offers a direct purchase plan whereby any investor may buy the initial shares directly. Minimum initial investment is $250. There is one-time enrollment fee of $15. For enrollment information call (800) 742-6253 or visit the company’s transfer agent, Equiniti, at www.shareowneronline.com.
Charles B. Carlson, CFA, DRIP Investor, dripinvestor.com, 800-233-5922, November 2020