Stock Analysis

The Procter & Gamble Company (NYSE:PG) Remains a Dividend Powerhouse

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After a solid start to the quarter, The Procter & Gamble Company (NYSE: PG) dipped on the news. Although challenged, the company seems to be better at navigating the muddy waters of supply chain and inflationary issues than expected.

Yet, with a rich history and a solid dividend yield, it has been a cornerstone of many balanced portfolios. In this article, we will examine the latest developments and the dividend's status, as it currently yields 2.44%.

Earnings Results

  • GAAP EPS: US$1.61 (beat by US$0.02)
  • Revenue: US$20.34b (beat by US$470m)
  • Revenue growth: +5.3% Y/Y

The Health Care segment led the sales, as it rose 7%.

The company announced a plan to hike up the prices to offset climbing commodity costs and inflation. Yet, they plan to offset the price hikes with innovation, improving the value for the end consumer. The current outlook sees the higher commodity after-tax costs accounting for US$2.1b, with the additional US$200m expense due to higher freight costs.

Although the stock declined on the news, banks predominantly kept a positive outlook. Notably, J.P. Morgan (NYSE: JPM) gave it credit for maintaining the FY22 EPS outlook despite the higher cost pressures than initially anticipated in July.

Furthermore, from November 1, a new CEO will take the company's reins, as Jon Moeller succeeds David S.Taylor. Mr.Moeller has spent the entirety of his career in Procter & Gamble, joining the firm in 1988.

131 Years and Counting

While Procter & Gamble's 2.4% dividend yield is not the highest, we think its lengthy payment history is quite interesting. Through its long history, the company paid the dividend for 131 years and raised them for 65 years in a row.

This year, the company also conducted a buyback equivalent to around 2.7% of its market capitalization.

Explore this interactive chart for our latest analysis on Procter & Gamble!

NYSE: PG Historic Dividend October 19, 2021

1. Payout ratios

If a company is paying more than it earns, the dividend might become unsustainable - hardly ideal. So we need to form a view on if a company's dividend is sustainable relative to its net profit after tax. Procter & Gamble paid out 57% of its profit as dividends over the trailing twelve-month period, which looks like a healthy ratio.

A payout ratio above 50% generally implies a business is reaching maturity. However, it is still possible to reinvest in the business or increase the dividend over time, as we have seen with Procter & Gamble.

We also measure dividends paid against a company's levered free cash flow to see if enough cash was generated to cover the dividend. Procter & Gamble paid out 53% of its cash flow as dividends last year, which is within a reasonable range for the average corporation. It's positive to see that profits and cash flow cover Procter & Gamble's dividend since this is generally a sign that the dividend is sustainable. A lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Remember, you can always get a snapshot of Procter & Gamble's latest financial position by checking our visualization of its financial health.

2. Dividend Volatility

Procter & Gamble has been paying dividends for a very long time, but we only examine the past 10 years of payments for this analysis. The dividend has been stable over the past 10 years, which is great.

During the past 10-year period, the first annual payment was US$1.9 in 2011, compared to US$3.5 last year. Dividends per share have grown at approximately 6.1% per year over this time.

Dividends have grown at a reasonable rate over this period and without any significant cuts in the payment over time which is a good combination.

3. Dividend Growth Potential

Dividend payments have been consistent over the past few years, but we should always check if earnings per share (EPS) are growing, as this will help maintain the purchasing power of the dividend.

After a slump in revenues through the first half of the last decade, Procter & Gamble has been growing its earnings per share at 10% a year over the past five years. Its earnings per share have grown rapidly in recent years. However, more than half of its profits are being paid out as dividends, which makes us wonder if the company has a limited number of reinvestment opportunities in its business.

Safe Dividend Even at Modest Growth

When we look at a dividend stock, we need to form a judgment on whether the dividend will grow, if the company can maintain it in a wide range of economic circumstances and if the dividend payout is sustainable.

Procter & Gamble is paying out more than half its income as dividends, but at least the dividend is covered by both reported earnings and cash flow. We like that it has been delivering solid improvement in its earnings per share and relatively consistent dividend payments. Although the company is facing some headwinds, it is in the same basket as the rest of the industry, while better positioned to weather the storm than the majority.

Overall we think Procter & Gamble is a good dividend stock, and even at relatively modest growth projections, it can easily afford to continue hiking the dividends through the 2020s.

Market movements attest to how highly valued a consistent dividend policy is compared to a more unpredictable one. However, there are other things to consider for investors when analyzing stock performance. As an example, we've identified 2 warning signs for Procter & Gamble that you should be aware of before investing.

If you are a dividend investor, you might also want to look at our curated list of dividend stocks yielding above 3%.

What are the risks and opportunities for Procter & Gamble?

The Procter & Gamble Company provides branded consumer packaged goods worldwide.

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  • Trading at 3% below our estimate of its fair value

  • Earnings are forecast to grow 5.45% per year


  • Significant insider selling over the past 3 months

  • Has a high level of debt

View all Risks and Rewards

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Simply Wall St analyst Stjepan Kalinic and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

Stjepan Kalinic

Stjepan Kalinic

Stjepan is a writer and an analyst covering equity markets. As a former multi-asset analyst, he prefers to look beyond the surface and uncover ideas that might not be on retail investors' radar. You can find his research all over the internet, including Simply Wall St News, Yahoo Finance, Benzinga, Vincent, and Barron's.


Procter & Gamble

The Procter & Gamble Company provides branded consumer packaged goods worldwide.

Established dividend payer and fair value.