The recent plunge in the stock market triggered by the COVID-19 outbreak is likely due to fears that corporate profits will fall off a cliff as individuals and businesses drastically cut spending.
But if you’ve been in a supermarket lately, chances are you’ve bought (and maybe hoarded) some Procter & Gamble (NYSE: PG) products.
Its brands include Charmin, Pampers, Tide, Crest and Pepto-Bismol – all things that people don’t want to chance being without in a time of crisis.
Less crisis-driven household name brands under Procter & Gamble include Old Spice, Swiffer, Dawn and Febreze.
These are staples that most households buy throughout the year in good times and bad.
Procter & Gamble is the epitome of a Perpetual Dividend Raiser. In fact, the last year that the world didn’t experience a dividend increase from Procter & Gamble was 1956… the same year that President Eisenhower won reelection, “Heartbreak Hotel” by Elvis Presley topped the charts and Around the World in 80 Days won best picture at the Oscars. That was more than six decades ago.
That’s a heck of a streak.
Procter & Gamble has operated in all kinds of conditions in the past, but can its dividend weather the coronavirus?
Despite its brands perhaps not being the most glamorous, Procter & Gamble makes products and brands most people buy. And though competition is fierce, free cash flow has been climbing the past few years.
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Free cash flow has been steadily climbing. This year, it’s projected to grow more than 5%. Now, the impact of COVID-19 will probably affect sales and cash flow, though it may actually help Procter & Gamble in the short term (specifically in the first quarter) as people stock up on toilet paper and other essentials.
I believe the consumer products company can still hit its targets this year.
So unless we see Taco Bell’s sales numbers rise, it may take a while for Americans to get through all that toilet paper. Look for second and third quarter numbers to lag.
Procter & Gamble’s quarterly dividend is $0.746 per share, or $2.984 annually. This year, the company is expected to pay out $7.38 billion in dividends, or just 58% of its free cash flow. That means even if free cash flow slips as a result of a slower economy this year, it will still generate plenty of cash to pay the dividend.
The company’s business should easily support the dividend. And the fact that management would likely do everything it could to continue the six decades-plus streak of annual dividend raises makes it even more secure.
In uncertain times, it’s comforting to have something as certain as Procter & Gamble’s dividend.
Dividend Safety Rating: A
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About Marc Lichtenfeld
Marc Lichtenfeld is the Chief Income Strategist of Investment U’s publisher, The Oxford Club. He has more than three decades of experience in the market and a dedicated following of more than 500,000 investors.
After getting his start on the trading desk at Carlin Equities, he moved over to Avalon Research Group as a senior analyst. Over the years, Marc’s commentary has appeared in The Wall Street Journal, Barron’s and U.S. News & World Report, among other outlets. Prior to joining The Oxford Club, he was a senior columnist at Jim Cramer’s TheStreet. Today, he is a sought-after media guest who has appeared on CNBC, Fox Business and Yahoo Finance.
Marc shares his financial advice via The Oxford Club’s free daily e-letter called Wealthy Retirement and a monthly, income-focused newsletter called The Oxford Income Letter. He also runs four subscription-based trading services: Technical Pattern Profits, Penny Options Trader, Oxford Bond Advantage and Predictive Profits.
His first book, Get Rich with Dividends: A Proven System for Earning Double-Digit Returns, achieved bestseller status shortly after its release in 2012, and the second edition was named the 2018 Book of the Year by the Institute for Financial Literacy. It has been published in four languages. In early 2018, Marc released his second book, You Don’t Have to Drive an Uber in Retirement: How to Maintain Your Lifestyle without Getting a Job or Cutting Corners, which hit No. 1 on Amazon’s bestseller list. It was named the 2019 Book of the Year by the Institute for Financial Literacy.
