Last update on 2024-06-25

Procter & Gamble (PG) - Dividend Analysis (Final Score: 8/8)

Comprehensive analysis of Procter & Gamble's dividend performance and stability, scoring 8/8. Ideal for dividend-focused investors seeking reliable returns.

Short Analysis - Dividend Score: 8

We're running Procter & Gamble (PG) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

The analysis of Procter & Gamble's (PG) dividend policy is quite positive. Firstly, PG's dividend yield is higher than the industry average, indicating a strong return on investment. The company also shows an average annual dividend growth rate above 5%, proving its robust ability to increase shareholder returns consistently over the past 20 years. Additionally, PG's average payout ratio is under 65% mainly, suggesting financial prudence even though there have been few spikes above the threshold. Notably, PG's earnings and cash flow have consistently covered its dividends over the years, assuring financial stability. We observed stable and increasing dividends with no drops of more than 20% since 2003, and the company has paid growing dividends for over 25 years. Lastly, PG has also been reliable in stock repurchases, further emphasizing its shareholder-friendly approach. Overall, PG demonstrates a strong commitment to its dividend policy and financial robustness.

Insights for Value Investors Seeking Stable Income

Based on the comprehensive analysis, Procter & Gamble (PG) appears to be an attractive stock for dividend-seeking investors. Its consistent and rising dividend payouts, financial stability, and history of stock repurchases make it a reliable and potentially rewarding investment. Therefore, it is worth considering for those looking to invest in companies with solid dividend policies and long-term financial health.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

The dividend yield is a financial ratio that shows how much a company pays out in dividends each year relative to its stock price. It is an important metric for investors seeking income from their investments. A higher dividend yield can indicate a potentially better return on investment, though it must be balanced with other financial health indicators of the company.

Procter & Gamble (PG) boasts a current dividend yield of 2.5495%, which is considerably higher than the industry average of 1.82%. Historically, PG's dividend yield has been fairly consistent, peaking during periods of lower stock prices and during broader market downturns. For instance, the dividend yield was highest at 3.3157% in 2015 when the stock price dipped to $79.41 per share. This consistency in dividend payout is reinforced by the rise in dividend per share from $0.865 in 2003 to $3.736 in 2023, even as the stock price increased from $49.94 to $146.54 over the same period. This trend suggests a strong commitment to returning value to shareholders, which is favorable. Overall, the trend is positive as it implies that PG maintains a robust dividend policy even in varying market conditions, providing a reliable income source for dividend-seeking investors.

Average annual Growth Rate higher than 5% in the last 20 years?

The Dividend Growth Rate demonstrates how much a company's dividend payouts have increased over a specific period. A growth rate higher than 5% indicates a robust ability to return profits to shareholders, showing financial health and confidence.

Procter & Gamble's (PG) dividend per share ratios over the past 20 years reveal fluctuating growth rates. The average dividend ratio of 6.15% does indicate growth above the 5% threshold on average. Despite fluctuations, including negative growth in one year, the overall trend showcases a strong and consistent ability to increase shareholder returns. However, observing consistent years with lower than 5% growth or notable dips such as in 2015 or 2023 suggests careful monitoring is essential to ensure long-term sustainability. Overall, this trend is favorable, reflecting P&G's robust financial position.

Average annual Payout Ratio lower than 65% in the last 20 years?

The payout ratio is the proportion of earnings paid out as dividends to shareholders, typically expressed as a percentage. A payout ratio lower than 65% is considered sustainable, as it indicates that the company retains enough earnings to fund growth, pay off debt, or handle downturns.

Procter & Gamble (PG) has maintained an average payout ratio of approximately 63.05% over the last 20 years, which is slightly below the 65% threshold. This suggests that the company has managed its dividend payments prudently most of the time, ensuring financial sustainability. However, it's important to note that in some years, such as 2015, 2016, 2018, and 2019, the payout ratio significantly exceeded 65%, with 2019 being exceptionally high at 189.84%. These spikes might raise concerns about sustainability during those years, likely attributable to unusual earnings pressures or extraordinary dividend policies. Overall, the trend is positive as the majority of years fall under the 65% mark, but the occasional spikes warrant attention.

Dividends Well Covered by Earnings?

Explain the criterion for Procter & Gamble (PG) and why it is important to consider

Dividends are well covered by the earnings. The earnings per share over the years from 2003 to 2023 for Procter & Gamble (P&G) have shown a positive trend. They have increased from $1.85 in 2003 to $6.19 in 2023. In parallel, dividends per share have also been on a rise from $0.87 in 2003 to $3.74 in 2023. During these years, the coverage ratio (Earnings per share/Dividend per share) has varied, but Procter & Gamble has generally maintained a consistent coverage ratio above 0.40. This indicates that on average, PG’s earnings are at least 40% more than its dividend commitments. Notably, there are years like 2015 and 2019 where this ratio spiked to 1.08 and 1.90 respectively, signifying exceptionally high earnings relative to dividends, underlying sound financial health. Overall, maintaining a robust coverage ratio above 0.40 over two decades reflects a strong dividend policy, making it favorable for income-focused investors. This is a positive trend and reflects the company's ability to generate sufficient earnings to cover its dividend payments, thereby showcasing its financial stability and consistency in rewarding shareholders.

Dividends Well Covered by Cash Flow?

how well free cash flow covers dividends

In analyzing Procter & Gamble's free cash flow coverage for its dividends, we see a dynamic trend. For instance, in 2003, the free cash flow of $7.218 billion covered dividends by a factor of 0.31, whereas by 2023, the coverage increased to 0.65 with free cash flow at $13.786 billion and dividends at $8.999 billion. Periods like 2014 saw very high coverage (0.68) indicating stronger financial health, but there were years with relative dips, such as in 2011 (0.58). Overall, the upward trend, peaking nearly two decades later, signifies a strengthening capacity to cover dividends, which is financially sound.

Stable Dividends Since the Company Began Paying Dividends?

Stability in dividend payments, where the dividend per share did not drop by more than 20% over the past two decades, is of utmost importance for income-seeking investors.

Analyzing the data, it is observed that the dividend per share (DPS) for Procter & Gamble (PG) from 2003 to 2023 has shown a consistent upward trajectory. Starting at $0.865 in 2003 and increasing steadily to $3.736 by 2023, there is no evidence of a drop greater than 20% at any point. This indicates that Procter & Gamble has maintained a disciplined and stable approach to rewarding its shareholders and implies financial strength and commitment to providing returns to investors. This stability is highly favorable for income-seeking investors who prioritize predictable dividend income.

Dividends Paid for Over 25 Years?

Examining whether a company has paid dividends for over 25 years helps investors assess the company's commitment to returning value to shareholders and its financial stability over extended periods.

Procter & Gamble (PG) has consistently paid and increased its dividend per share every year from 1998 to 2023, reflecting a steady and reliable commitment to shareholders. Over this 25-year period, the dividend increased from $0.537 per share in 1998 to $3.736 per share in 2023, reflecting a compound annual growth rate (CAGR) that demonstrates robust financial health and predictable cash flows. This enduring trend is positive and indicates P&G's operational success and shareholder value proposition, fitting well within the criteria of long-term dividend stability and growth.

Reliable Stock Repurchases Over the Past 20 Years?

How consistent and reliable a company is in repurchasing its own stock over a significant period, such as 20 years, is crucial for investors. This can be an indicator of the company's financial health and management's confidence in future prospects.

Reviewing Procter & Gamble's (PG) share repurchase history over the last 20 years shows a generally reliable trend. Notably, share counts have decreased in 16 of the 21 years listed, highlighting a consistent strategy. For example, between 2003 and 2023, the number of shares reduced from approximately 2.8 billion to 2.37 billion. This steady reduction signals management's commitment to returning value to shareholders, which can boost earnings per share (EPS) and improve stock value. However, the occasional increases in share count (e.g., 2006, 2007, 2008, and 2020) might reflect periods of stock issuances due to acquisitions, share-based compensations, or other financial activities. Overall, the average repurchase rate of -0.7123 indicates a strong tendency towards reducing the share count, corroborating a positive trend in repurchases over the long term. This should be seen bullishly by long-term investors as it reflects solid financial health and shareholder-friendly policies.