Today we received a payment from Procter & Gamble (PG) in the amount of $99.17 (148.125 shares X 66.95 cents per share) which was reinvested back into more shares of PG. When looking at P&G financials, we see a textbook example of decreasing revenues driving up the payout ratio.
At an 80% payout ratio we’re not left with a great deal of buffer, however PG is sitting on $13 billion in cash which could be used to supplement a dividend payment increase until things turn around. Here’s what their dividend growth has looked like over the past 10 years:
The growth rate is clearly slowing, and with a yield of over 3%, it’s pretty obvious that the lack of dividend growth is priced in. This is a company that has been increasing dividends for 60 years and there is no reason to think that they can’t continue to do so going forward.
In a previous article we discussed the diversification value of conglomerates. PG is considered a conglomerate and they are now in the process of optimizing their portfolio of businesses. Out of the 5 conglomerates we own, PG has the highest Q-Score though this will gradually fall over time should their dividend growth rate continue to remain in the low single digits.
While this company has been a staple holding for almost every serious DGI investor, the skeptics are coming out of the woodwork to chastise PG for their lack of growth. The latest articles on Seeking Alpha are all doom and gloom with speculation that the company will be broken up soon. The reality is that PG management acknowledges the growth problems and is working on fixing them. With a new CEO at the helm since late last year, the Company is now focusing on their 65 core brands that represent the majority of sales.
Our current position in PG sits at around $12,889 which is nearly at our target position size of $13,333. Our cost basis for this position sits at around $11,787 so we’re sitting on a small gain which we don’t care about. All we want now is for that share price to drop as low as possible so that we can continue buying the rest of our position which we will be holding indefinitely.