Up to date on March nineteenth, 2024 by Bob Ciura

The Dividend Aristocrats are extensively often called the most effective dividend progress shares to purchase and maintain for the long run. These corporations have generated robust earnings yr after yr, even throughout recessions, and have confirmed the flexibility to develop their earnings steadily over a few years.

The Dividend Aristocrats are a bunch of corporations within the S&P 500 Index, with 25+ consecutive years of dividend will increase. Of the ~505 shares that comprise the S&P 500 Index, simply 68 presently qualify as Dividend Aristocrats.

You’ll be able to obtain an Excel spreadsheet with the complete checklist of Dividend Aristocrats by clicking on the hyperlink beneath:

 

Disclaimer: Certain Dividend shouldn’t be affiliated with S&P World in any means. S&P World owns and maintains The Dividend Aristocrats Index. The data on this article and downloadable spreadsheet relies on Certain Dividend’s personal evaluate, abstract, and evaluation of the S&P 500 Dividend Aristocrats ETF (NOBL) and different sources, and is supposed to assist particular person traders higher perceive this ETF and the index upon which it’s based mostly. Not one of the info on this article or spreadsheet is official knowledge from S&P World. Seek the advice of S&P World for official info.

As soon as per yr, we evaluate every of the Dividend Aristocrats. Up subsequent within the collection is the buyer merchandise behemoth Procter & Gamble (PG). P&G has paid dividends for 133 years and has elevated its dividend for an incredible 67 consecutive years.

Not solely is the corporate a Dividend Aristocrat, however additionally it is a Dividend King as properly. The Dividend Kings have elevated their dividends for 50+ consecutive years.

Procter & Gamble is without doubt one of the most well-known dividend shares, largely as a result of its extraordinarily lengthy dividend historical past and its extensively recognizable manufacturers.

This text will focus on P&G’s latest portfolio transformation, future progress prospects, and inventory valuation.

Enterprise Overview

Procter & Gamble is a client merchandise big that sells its merchandise in additional than 180 international locations and generates over $80 billion in annual gross sales. A few of its core manufacturers embody Gillette, Tide, Charmin, Crest, Pampers, Febreze, Head & Shoulders, Bounty, Oral-B, and lots of extra.

The corporate trades with a market capitalization of roughly $380 billion. This qualifies P&G as a mega-cap inventory.

Throughout P&G’s large portfolio restructuring over the previous few years, the corporate bought off dozens of its client manufacturers. Immediately, P&G has slimmed down to simply ~65 manufacturers, down from 170 beforehand.

The advantage of the restructuring is that P&G held on to its core client manufacturers equivalent to Tide, Charmin, Pampers, Gillette, and Crest, whereas shedding low-margin companies with restricted progress potential.

The impact of the transformation is that P&G is now a nimbler, extra versatile group with improved progress prospects.

Progress Prospects

P&G’s slimmed-down portfolio has made the corporate extra environment friendly, with decrease prices and better margins. As well as, P&G obtained billions of {dollars} from its varied asset gross sales, a big portion of which was used to purchase again inventory. These share repurchases improved P&G’s earnings-per-share progress.

In late January, Procter & Gamble reported (1/23/24) monetary outcomes for the second quarter of fiscal 2024 (its fiscal yr ends June thirtieth). It grew its gross sales and its natural gross sales by 3% and 4%, respectively, over final yr’s quarter. Natural gross sales progress resulted from 4% worth hikes, which offset a marginal lower in volumes.

Regardless of the headwind of excessive value inflation, earnings-per-share grew 16% thanks to cost hikes, from $1.59 to $1.84, beating the analysts’ consensus by $0.14. The agency gross sales amid robust worth hikes are a testomony to the power of the manufacturers of Procter & Gamble.

The corporate reiterated its steerage for 4%-5% natural gross sales progress in fiscal 2024 and improved its steerage for progress of earnings-per-share from 6%-9% to eight%-9%.

We’re forecasting 5% annual earnings-per-share progress over the subsequent 5 years.

Aggressive Benefits & Recession Efficiency

P&G has a number of aggressive benefits. The primary is its robust model portfolio. P&G has a number of manufacturers that generate $1 billion or extra in annual gross sales. The ~65 remaining core manufacturers maintain management positions of their respective classes. These merchandise are related to prime quality, and customers can pay a premium for them.

To retain its aggressive place, the corporate invests closely in promoting, which it could actually do due to its monetary power. The corporate invests billions extra every year in analysis and improvement. This funding is a aggressive benefit for P&G; R&D fuels product innovation, whereas promoting helps market new merchandise and acquire share.

P&G’s aggressive benefits enable the corporate to stay worthwhile, even in periods of recession. Earnings held up very properly throughout the Nice Recession:

• 2007 earnings-per-share of $3.04
• 2008 earnings-per-share of $3.64 (19.7% enhance)
• 2009 earnings-per-share of $3.58 (-1.6% decline)
• 2010 earnings-per-share of $3.53 (-1.4% decline)

As you may see, P&G had a really robust yr in 2008, with practically 20% earnings progress. Earnings dipped solely mildly within the following two years.

This was a really robust efficiency in one of many worst financial downturns previously a number of many years. The corporate continued to carry out properly throughout 2020-2021 when the coronavirus pandemic despatched the U.S. financial system into recession. As soon as once more, P&G generated steady earnings and raised its dividend.

P&G has a recession-resistant enterprise mannequin. Put merely, everybody wants paper towels, toothpaste, razors, and different P&G merchandise, whatever the financial local weather.

Valuation & Anticipated Returns

Primarily based on anticipated earnings-per-share of $6.40 for fiscal 2024, together with a present inventory worth of ~$161, P&G is presently buying and selling at a price-to-earnings ratio of 25.2.

Over the previous decade, shares traded with a median valuation of round 20 instances earnings. As such, shares look like greater than totally valued. The improved progress prospects of the corporate look like priced in, after which some.

If P&G’s valuation have been to revert again to twenty instances earnings, which is our estimate of truthful worth, future shareholder returns would face a -4.5% annual discount over the subsequent 5 years.

Earnings progress and dividends will assist offset the affect of a contracting price-to-earnings a number of. For instance, we count on P&G to generate 5% annual earnings progress by means of 2028, and the inventory has a present dividend yield of two.3%.

Nevertheless, including all of it up leaves uninspiring whole return potential within the low single-digits on an annualized foundation. Whole returns are anticipated at 2.8% per yr, because the affect of a declining valuation a number of successfully offsets the corporate’s anticipated EPS progress.

Granted, this estimate may very well be too conservative if shares have been to proceed buying and selling at an elevated valuation, or if progress have been to formulate at a faster tempo.

The present dividend payout is well-covered by earnings. Primarily based on anticipated fiscal 2024 earnings, P&G has a payout ratio of simply over 59%. This leaves sufficient cushion for future dividend will increase every year within the low-to-mid single-digit vary.

Traders ought to count on P&G to proceed growing its dividend every year for a few years to come back. It has the model power, aggressive benefits, and profitability to take care of its regular annual dividend will increase over the long run.

Remaining Ideas

P&G has many robust qualities that make it a time-tested dividend progress firm. It has paid a dividend for 133 years. It has additionally earned a spot on each the Dividend Aristocrats and Dividend Kings lists.

Nevertheless, the present valuation – notably above its historic common regardless of a rising-rates atmosphere – leaves one thing to be desired from a worth perspective.

In consequence, we’ve got assigned shares a maintain advice, on condition that valuation issues overshadow the corporate’s dividend yield and dividend progress prospects.

Moreover, the next Certain Dividend databases comprise probably the most dependable dividend growers in our funding universe:

Should you’re in search of shares with distinctive dividend traits, think about the next Certain Dividend databases:

The main home inventory market indices are one other strong useful resource for locating funding concepts. Certain Dividend compiles the next inventory market databases and updates them month-to-month: