Given the diversity of thought that exists among the billions of people in the world, it's hard to find subjects upon which the vast majority agree. But just about everybody probably dreams of a penny-pinching-free retirement. In other words, we all want to enjoy a safe and secure retirement.
One of the most common vehicles that many investors have used to achieve a successful retirement is dividend growth stocks. And with 50-plus years of dividend growth to their credit, income investors would be wise to consider Dividend Kings for their portfolios.
Procter & Gamble's (PG +0.28%) 67-year dividend growth streak is in a five-way tie for the second-longest dividend growth streak out of 49 Dividend Kings. Here are three reasons why the consumer staple could fit as a core position within any income-driven portfolio.
NYSE: PG
Key Data Points
1. P&G's brand portfolio is timeless
P&G could hold the distinction of owning the most impressive all-around brand collection on the planet. This is because with the likes of Pampers diapers, Bounty paper towels, Gillette razors, and Head & Shoulders shampoo, the company has no shortage of heavy hitters in its brand lineup. The dozens of leading brands in its portfolio have earned the company a routine consumer base of roughly 5 billion people around the globe.
| Metric | Q4 2022 | Q4 2023 |
|---|---|---|
| Organic sales growth rate | 7% | 8% |
| Net margin | 15.6% | 16.5% |
| Diluted share count (in millions) | 2,523 | 2,478 |
Data source: Procter & Gamble.
P&G recorded $20.6 billion in net sales in the fiscal 2023 fourth quarter concluded June 30, which was up 5.3% over the year-ago period. The company's top-line growth was largely due to 7% price hikes passed on to consumers to keep up with rising costs. A shift toward more favorable product mix (higher-priced items) also contributed 2% to net sales growth during the quarter. This was partially offset by a 3% foreign exchange headwind related to foreign currencies losing strength to the U.S. dollar for the quarter. P&G's increased prices were largely tolerated by customers, with shipment volumes declining just 1% in the quarter.
The Ohio-based company's non-GAAP (core) diluted earnings per share (EPS) surged 13.2% higher during fiscal Q4. Slower combined growth in its two biggest expense categories (cost of products sold, and selling, general, and administrative expenses) than in net sales helped net margin to expand meaningfully for the quarter. Coupled with share buybacks that reduced the diluted share count, this is how P&G's core diluted EPS growth outpaced net sales growth in the quarter.
As the company rolls out additional products to complement its already admirable portfolio and its sales mix becomes more profitable, the future should be promising. That's why analysts are expecting annual core diluted EPS growth of 5.5% for the next five years -- just below the household and personal products industry average annual earnings growth outlook of 6.2%.
Image source: Getty Images.
2. A market-exceeding dividend that can be trusted
If P&G's remarkable consistency isn't enough to impress income investors, its 2.4% dividend yield may do the trick. Put into perspective, that is much more than the S&P 500 index's 1.5% yield.
There is also plenty of room for P&G to hand out mid-single-digit annual dividend growth moving forward. That's because with the dividend payout ratio set to clock in at around 60% for the fiscal year ending June 2024, the company is keeping enough funds for both debt repayment and business growth.
3. The stock is fairly valued
Shares of P&G have rallied 11% in the past 12 months. But with that said, the stock doesn't look to be unreasonably priced. P&G's forward price-to-earnings (P/E) ratio of 22.7 is less than the household and personal products industry average forward P/E ratio of 27.5. That more than factors its slightly lower growth prospects versus industry peers into the equation. This is why I believe income investors should consider buying here and adding to their positions in the stock over time.
