The importance of brands to consumer companies like this one can’t be overstated, especially when strong COVID-19 demand for its hygiene and cleaning products continues to fuel earnings and dividends.
Improved sales led to an 8.2% jump in revenue during the quarter ended December 31, 2020.
Meanwhile, the stock trades at 24.3 times the company’s 2021 earnings forecast.
PROCTER & GAMBLE CO. (New York symbol PG; www.pg.com) gives you a stake in one of the world’s largest makers of household and personal-care goods.
The company has five main business lines: fabric and home-care products such as Tide laundry detergent (33% of fiscal 2020 sales, 31% of earnings); baby, feminine and family-care goods, including Pampers diapers (26%, 26%); beauty items such as Head and Shoulders shampoo (19%, 21%); health-care items such as Crest toothpaste (13%, 12%); and grooming products, including Gillette razors (9%, 10%). Walmart accounts for 15% of overall sales.
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In May 2020, the company rewarded investors with a 6% boost in the quarterly dividend—its 64th annual increase. The payment of $0.7907 a share makes for an annual rate of $3.16. That gives you a sound 2.6% yield.
In the past few years, the company has added investor value by selling its less-important brands to streamline its operations. As a result, sales declined 14.4% from $76.3 billion in 2015 to $65.3 billion in 2016. They declined again in 2017 (fiscal years end June 30) by 0.03% to $65.1 billion. Sales then rose 2.7% to $66.8 billion in 2018 and improved a further 1.3% to $67.7 billion in 2019. In 2020, the company’s sales increased 4.8% to $71.0 billion, driven by strong unit sales across its operating segments.
Earnings from continuing operations were $8.3 billion in 2015. They rose 20.5% in 2016 to $10.0 billion. With fewer shares outstanding, per-share earnings rose 22.9%, from $2.92 to $3.59. Thanks partly to a new restructuring plan, which includes closing plants in North America and shifting production to larger facilities, earnings continued to improve in 2017: They rose to $3.92 a share (or a total of $10.7 billion). They improved again in 2018 and 2019, rising to $4.22 a share and $4.52, respectively. They reached $5.12 a share (or $13.4 billion) in 2020.
The company continues to benefit from its 2014 plan to shed about 100 of its less-important brands. That lets it better focus on its remaining 65 or so core brands. At the same time, it spends a combined 13% of its sales on developing new products and its marketing. Those outlays hurt current profits, but let Procter quickly respond to changing consumer preferences.
Since it implemented its new strategy, Procter’s shares have gained over 60%. The company also continues to reward investors with annual dividend increases; Starting with the May 2021 payment, the company will raise its quarterly dividend by 10.0%, to $0.8698 a share from $0.7907. The new annual rate of $3.48 yields 2.4%. Procter has paid dividends for 131 years and increased its payout annually for the past 65.
In its fiscal 2021 second quarter, ended December 31, 2020. Procter’s earnings jumped 14.4%, to $4.28 billion from $3.74 billion a year earlier. Per-share earnings rose 15.5%, to $1.64 from $1.42on fewer shares outstanding.
In the quarter, sales gained 8.2%, to $19.75 billion from $18.24 billion on higher volumes, slightly higher prices and a better mix of products.
Procter recently dropped its plan to buy Billie Inc., a popular brand of women’s body care products. The U.S. Federal Trade Commission objected to the acquisition as it felt the deal would reduce competition and raise the price of women’s razor blades.
The company’s strong balance sheet will let it pursue other acquisitions. As of December 31, 2020, its long-term debt of $22.5 billion was a low 7% of its market cap. It held $11.9 billion in cash.
The stock now trades at 24.3 times Procter’s forecast fiscal 2021 earnings of $5.67 a share. That’s a reasonable multiple in light of the company’s strong brands and geographic reach.
Recommendation in Dividend Advisor: Procter & Gamble Co. is a buy.
Comments
Subscriber
I wish I was subscribed to you when Yellow pages was “going digital” to keep pace and was a hold from another advisory till their death (practically).
Do you think the eventual total coverage of satellite constellations will diminish Telcoms glory such as BCE? (I’ve never done well trying to enter/exit positions based on tech innovation timing).
Thanks, Burton.
Thanks for the feedback. In the past few years, Telus and BCE, for example, have invested large sums on upgrades to their wireless and high-speed Internet networks. These big projects are now coming to an end, which will free up more cash for dividends. Those 5G networks should spur revenue and earnings for years to come.
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I wish I was subscribed to you when Yellow pages was “going digital” to keep pace and was a hold from another advisory till their death (practically).
Do you think the eventual total coverage of satellite constellations will diminish Telcoms glory such as BCE? (I’ve never done well trying to enter/exit positions based on tech innovation timing).
Thanks, Burton.
Thanks for the feedback. In the past few years, Telus and BCE, for example, have invested large sums on upgrades to their wireless and high-speed Internet networks. These big projects are now coming to an end, which will free up more cash for dividends. Those 5G networks should spur revenue and earnings for years to come.