Proctor and Gamble

There's a lot of things I like about Proctor and Gamble as a company, but as a stock it's a little less desirable. It's one of those companies that everyone wants to own and therefore it's been bid up a little too high for my liking. 

The Company

The Procter & Gamble Company (PG), together with its subsidiaries, manufactures and sells branded consumer packaged goods. The company operates through five segments: Beauty, Grooming, Health Care, Fabric Care and Home Care, and Baby Care and Family Care. 

The Beauty segment offers antiperspirants and deodorants, cosmetics, personal cleansing, skin care, hair care, hair colors, prestige products, and professional salon products under the Head & Shoulders, Olay, Pantene, SK-II, and Wella brand names. The Grooming segment provides blades and razors, pre- and post-shave products, and electronic hair removal devices under the Braun, Fusion, Gillette, Mach3, and Prestobarba brand names. The Health Care segment offers feminine care and incontinence products; toothbrush, toothpaste, and other oral care products; and gastrointestinal, rapid diagnostics, respiratory, vitamins, and other personal health care products. This segment markets its products under the Always, Crest, Oral-B, and Vicks brand names. The Fabric Care and Home Care segment provides bleach and laundry additives, fabric enhancers, and laundry detergents; air care, dish care, and surface care products; batteries; pet care products; and professional products. This segment sells its products under the Ace, Ariel, Dawn, Downy, Duracell, Febreze, Gain, Iams, and Tide brand names. The Baby Care and Family Care segment offers baby wipes, diapers, pants, paper towels, tissues, and toilet papers under the Bounty, Charmin, and Pampers brand names. 

The company markets its products through mass merchandisers, grocery stores, membership club stores, drug stores, department stores, salons, high-frequency stores, and e-commerce in approximately 180 countries worldwide. The Procter & Gamble Company was founded in 1837 and is based in Cincinnati, Ohio. (Daily Chart) (Weekly Chart)

The Fundamentals

A closer look at Proctor and Gamble's revenues, earnings, dividends and payout ratio for the last several years and two forward looking estimates shows a mixed bag of information. For Dividend Growth Investors the constantly increasing dividend is a real comfort. Dividends are growing at approximately 8% per year and that's in excess of the current rate of inflation. This is a critical piece of information for anyone looking to eventually live off the dividends. 

Revenues have also been increasing but at a very sporadic rate. There were up years followed by down years followed by up years. These are not the kind of revenue figures you would like to see from a large capitalization company. Fortunately estimates going forward continue the direction of those increasing revenues started in 2009. 

Earnings are also sporadic with increases in earnings until 2009 and then falling for three years. While earnings improved during 2013, estimates aren't predicting an increase in earning above those delivered in 2009 until 2015. 

I understand there was a recession in 2008 and 2009 which probably affected revenues and earnings, but by continuing to increase dividends when they weren't supported by increases in revenues and earnings caused the payout ratio to increase from 39% in 2009 to 60% in 2013. While some investors may dismiss this as dividends that are well within the company's ability to pay, it sends red flags up for me. This increased payout ratio reduces retained earnings in an industry that is known to be highly competitive. Any potential loss in competitive product development will eventually affect revenue and earnings. It's something I would monitor going forward. I would feel more comfortable if Proctor and Gamble had slowed their rate of increase in dividends during those lean years but still maintained it at a level in excess of inflation.  

Year (June)
2015 Est.
2014 Est.
2013
2012
2011
2010
2009
2008
2003

Revenues
$87.62 Bil
$85.11 Bil
$84.16 Bil
$83.68 Bil
$81.10 Bil
$77.56 Bil
$76.69 Bil
$83.50 Bil
$43.37 Bil

Earnings
$4.57
$4.22
$3.86
$3.66
$3.93
$4.11
$4.26
$3.64
$1.84

Dividend
$2.64
$2.48
$2.32
$2.17
$2.01
$1.84
$1.68
$1.50
$0.84

Payout Ratio
57.76%
58.76%
60.10%
59.28%
51.14%
44.76%
39.43%
41.20%
45.65%

Additional items that I usually monitor are listed below. The P/E ratio of 21.51 will always raise a red flag simply because it's above 20. If the stock price fell to a level lower than $77.00 the P/E ratio would drop below 20 and the stock would be slightly more desirable. It would also allow for a greater increase in capital gains from it's current price to it's 1 year target of   8.55% to 12.92%. Combined with a 3.00% dividend, the total one year gain would be 15.92%. 

Beta = 0.41
P/E Ratio = 21.51
Current Dividend = $2.41 
Current Yield = 3.00%  ($2.41/$80.10)
1 Year Target = $86.95 or +8.55%   ($86.95/$80.10)
Revenue Growth Rate   3 year =  2.73%    5 year = 0.15%   10 year = 6.85%
Earnings Growth Rate  3 year = -2.06%   5 year = 1.18%    10 year = 7.69%
Dividend Growth Rate  3 year =  7.94%    5 year = 9.11%    10 year = 10.69%

Conclusion

I like this whole area of consumer goods/personal products, and Proctor and Gamble is one of the premier companies in this space, along with Kimberly Clark and Unilever. I will monitor all three of these companies going forward and I will be a buyer of Proctor and Gamble at prices of $77.00 and below.

Daily Chart

Weekly Chart

Good Luck and Good Trading.