Procter & Gamble is one of the biggest consumer good companies in the world. The company managed to increase its dividend every year for more than 6 decades, which makes Procter & Gamble (PG) one of the Dividend Kings. These are companies that have increased their dividends for at least 50 years in a row.

Company Overview           

Procter & Gamble is a consumer goods giant that produces and sells hair & skin care products, razors, laundry detergents, paper towels and many more branded consumer products. The company is active in more than 180 countries and is valued at more than $200 billion.

Procter & Gamble has reported its fiscal fourth-quarter results at the end of July. The company reported revenue growth of 3% during Q4. Earnings per share totaled $0.94 during the quarter, which was 11% more than during the previous year’s Q4.

Growth Prospects       

Procter & Gamble has recorded strong earnings growth for a long period of time, but over the last decade growth has slowed down. In the last two years management has been very active to position the company for higher growth in the future. Among other things Procter & Gamble has been cutting expenses and has sold low-growth businesses in order to focus on the most attractive markets.

This has worked out well so far, during fiscal 2017 as well as during fiscal 2018 Procter & Gamble has recorded compelling earnings per share growth.

Source: Procter & Gamble

For fiscal 2019, which has started in July, Procter & Gamble forecasts earnings per share growth of 5%-6%. Thanks to its focus on more attractive product segments, streamlining of operations and the benefit of market growth in countries such as China and India it seems realistic that Procter & Gamble will be able to grow its profits at a similar rate beyond 2019.

Valuation, Dividends, And Expected Total Returns

Procter & Gamble trades at 18 times this year’s (fiscal 2019) earnings right now, which is a small discount compared to how the company was valued in the past. Procter & Gamble’s median earnings multiple over the last decade is 19, which we deem a fair valuation for this well-diversified, low-risk company.

Procter & Gamble’s dividend currently yields 3.5%, which is almost twice as high as the broad market’s dividend yield of 1.8%. This strong dividend yield, coupled with Procter & Gamble’s ultra-long-term dividend growth track record makes Procter & Gamble a compelling choice for income-focused investors.

Through mid-single digits earnings per share growth, a dividend yield of 3.5%, and some multiple expansion Procter & Gamble should be able to produce annual total returns of 9%-10% over the coming years.

Procter & Gamble has performed well during the last financial crisis, demand for its products is not cyclical, and Procter & Gamble is well diversified geographically and product-wise. The low-risk nature of its business model makes the expected high-single-digits total returns look quite compelling.

Final Thoughts

After several years during which Procter & Gamble has not produced high growth rates, the company has regained some strength. Profit growth looks compelling, and going forward Procter & Gamble should be able to produce at least mid-single digits earnings per share growth.

Coupled with a solid 3.5% dividend yield this will allow for attractive total returns over the coming years. For risk-averse investors looking for safe & reliable dividend growth, Procter & Gamble looks like a worthy pick.