In times of market turmoil, it is prudent to own low-volatility stocks. Proctor & Gamble (PG) qualifies with a 5-year beta of about 0.41, meaning the stock provides ballast in a down market. The company’s bear market performance validates this view, too. In addition, other characteristics contribute to Procter & Gamble’s dividend safety and place it on our best dividend growth stocks list.
The company is the market leader for consumer products. Next, only 15 companies have raised their dividend for 60+ years, including Procter & Gamble, a Dividend King. However, the stock is rarely undervalued, and investors often have few opportunities to buy it at a discount. However, Procter & Gamble’s dividend safety and growth trajectory make it a long-term buy.
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Overview of Procter & Gamble
The Procter & Gamble Company was founded in 1837. The company has grown dramatically since then. Today, it is one of the world’s largest consumer product companies, selling in over 180 countries. The company operates in five business segments: Beauty (18% of revenue in fiscal 2024), Grooming (8% of revenue), Health Care (14% of revenue), Fabric & Home Care (36% of revenue), and Baby, Feminine & Family Care (24% of revenue). Around 52% of revenue is from North America, and the rest is international.
After paring down its non-core and less profitable brands, Procter & Gamble has approximately 65 well-known brands divided into ten categories. The brands include Tide, Pampers, Olay, Old Spice, Secret, Head & Shoulders, Ivory, Pantene, Herbal Essences, Charmin, Gillette, Bounce, Always, Crest, Febreze, etc. The company has multiple $1+ billion brands.
Total revenue was about $84,039 million in fiscal year 2024 and in the past 12 months.
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Procter & Gamble’s Dividend and Growth
Procter & Gamble has paid a dividend since 1891, making it one of 25 companies to do so for more than 100 years in a row. This fact has placed it on the list of longest dividend paying companies. Additionally, according to Portfolio Insight*, it has increased the dividend for 68 consecutive years, making the stock a Dividend King, Dividend Aristocrat, and Dividend Champion. Procter & Gamble is also in the Dow Jones Industrial Averages (DJIA). Also, Procter & Gamble is extremely popular with investors following a dividend growth strategy.
Dividend Yield
The forward dividend yield is about 2.38%, based on a forward dividend rate of $4.03 per share. The dividend yield is one percentage point greater than that of the S&P 500 Index but lower than the 5-year average of 2.45%. Procter & Gamble’s dividend yield was much higher a few years ago when it was struggling with revenue and earnings growth. However, divesting brands and focusing on core brands with higher potential growth has caused performance to improve.
The graph below is from Portfolio Insight* and shows Procter & Gamble’s ten-year dividend yield history. The 5-year average dividend yield is 2.45%, higher than the forward yield of ~2.38%. The yield periodically goes over 3.5%, which is an excellent time to add shares to existing positions. Notably, Procter & Gamble’s dividend yield did not spike during the COVID-19 bear market, suggesting investors viewed it as a safe stock.
Dividend Growth
Procter & Gamble’s dividend growth is consistent but unremarkable. According to Portfolio Insight*, the 5-year dividend growth rate is ~5.64% CAGR, while the 10-year rate is 4.67%. A roughly 5% annual dividend growth rate means the dividend will double every 14.21 years based on the Rule of 72. Procter & Gamble’s most recent quarterly dividend increase was 7% to $1.0065 per share from $0.9407 in April 2024.
Next, we analyze Procter & Gamble’s (PG) dividend safety based on earnings, free cash flow (FCF), and debt. These metrics are known to be important for long-term dividend safety. A stock may show short-term fluctuations, usually due to temporary headwinds but the long-term stability of these metrics is essential for consistent dividend safety.
Payout Ratio
On a trailing basis, the company earned $6.59 per share based on data from Portfolio Insight*. The dividend was $3.735 per share. These values give a trailing payout ratio of about 57%, below the 65% cutoff we use for this metric. On a forward basis, adjusted earnings per share (EPS) covers the dividend too. Consensus adjusted EPS for fiscal 2025 is $6.96 per share, and the forward dividend is $4.03 per share. These numbers give a forward payout ratio of about 58%, a moderately conservative value.
Free Cash Flow
Procter & Gamble’s dividend is also well covered by FCF. The cash required to pay the dividend has steadily grown in the past decade. The dividend required $9,312 million in fiscal 2024, while it required $7,789 million five years ago in fiscal 2020. Consistent share buybacks have reduced the total share count, limiting the cash outlay growth for the dividend. In the past 12 months, FCF was $16,524 million. The dividend required $9,312 million, giving a dividend-to-FCF ratio of roughly 56%. This value is below our target of 70%.
Balance Sheet
The financial position is a massive positive for Procter & Gamble. At the end of fiscal year 2024, Procter & Gamble had $9,482 million in cash and cash equivalents. There was no short-term debt, but the current long-term debt was $7,191 million. In addition, the company had $25,269 million in long-term debt. This amount of debt sounds high, but not for a company the size of Procter & Gamble with its cash flow. Additionally, total debt has been relatively stable since the Great Recession.
The leverage ratio is conservative ~1.0X, and interest coverage is more than 22X. Furthermore, Procter & Gamble has an AA-/Aa3 high-grade investment credit rating from S&P Global and Moody’s. Few companies can match this credit rating.
Lastly, Procter & Gamble receives an ‘A+’ dividend quality grade from Portfolio Insight, placing it in the 95thpercentile. It measures earnings performance, revenue performance, dividend performance, profitability, and financial strength.
Overall, Procter & Gamble has excellent dividend safety.
Final Thoughts on Procter & Gamble’s Dividend Safety Analysis
Procter & Gamble is a popular dividend growth stock. It is not a high-growth stock; revenue and EPS grow slowly and steadily. Consequently, the dividend has grown steadily for the past 68 years. In addition, the company has paid a dividend for 130+ years. The stock is probably fairly valued at the current share price. However, the equity has proven its worth in volatile markets and is arguably one of the safest Dividend Kings. Investors should keep an eye on Procter & Gamble for future buying opportunities.
Disclosure: Long PG
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Prakash Kolli
Prakash Kolli is the founder of the Dividend Power site. He is a self-taught investor, analyst, and writer on dividend growth stocks and financial independence. His writings can be found on Seeking Alpha, InvestorPlace, Business Insider, Nasdaq, TalkMarkets, ValueWalk, The Money Show, Forbes, Yahoo Finance, and leading financial sites. In addition, he is part of the Portfolio Insight and Sure Dividend teams. He was recently in the top 1.0% and 100 (73 out of over 13,450) financial bloggers, as tracked by TipRanks (an independent analyst tracking site) for his articles on Seeking Alpha.
