Monday, March 17, 2008

Procter & Gamble Dividend Analysis

The Procter & Gamble Company (P&G), together with its subsidiaries, provides branded consumer goods products. The company operates through three global business units (GBU): Beauty, Health and Well-Being, and Household Care.
It is a dividend aristocrat as well as a major component of the S&P 500 and Dow Jones Industrials indexes. Over the past 10 years this dividend growth stock has delivered an annual average total return of 9.30 % to its shareholders. The company has managed to deliver an impressive 11.50% average annual increase in its EPS.

The ROE had been increasing steadily from 30% to 41% until the acquisition of Gillette in 2005. Currently it is hovering around 15%.

Annual dividend payments have increased over the past 10 years by an average of 11% annually, which matches the growth in EPS. An 11% growth in dividends translates into the dividend payment doubling almost every 7 years. If we look at historical data, going as far back as 1970, PG has indeed managed to double its dividend payments every seven years.

If we invested $100,000 in PG on December 31, 1997 we would have bought 2506 shares (Adjusted for 2:1 stock split in June 2004). Your first dividend payment would have been $315.76 in January 1998. If you kept reinvesting the dividends though instead of spending them, your quarterly dividend payment would have risen to $1048.25 by October 2007. For a period of 10 years, your quarterly dividend income has increased by 178 %. If you reinvested it though, your quarterly dividend income would have increased by 232%.

The dividend payout has remained below 50% for the majority of the time over the past 10 years. This is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

I think that PG is attractively valued with its low price/earnings multiple of 20 and above-average yield at 2.10%.

Disclosure: I own shares of PG

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