Is Procter & Gamble a Safe Investment Now?
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.
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
A master of the steady, reliable science of income investing, Marc’s commentary has appeared in The Wall Street Journal, Barron’s and U.S. News & World Report. He has also appeared on CNBC, Fox Business and Yahoo Finance. His book Get Rich With Dividends: A Proven System for Double-Digit Returns achieved best-seller status shortly after its release in 2012. He captures the hearts and minds of readers approaching their golden years in his daily e-letter, Wealthy Retirement.