Thursday, February 13, 2014

Proctor & Gamble (PG) 2014 Review

Proctor and Gamble is a major household products and cosmetics company marketing products in over 180 countries with three divisions:

(1) Beauty and Health products: Cover Girl, Max Factor, Olay, Old Spice, Clairol Nice ‘n Easy, Pantene, Head and Shoulders, Wella, Pert, Ivory, Safeguard, Zest, Secret, Right Guard, Always, Whisper, Tampax, Actonel, Prilosec OTC, Vicks, Scope, Pepto-Bismol, Therm-Care, Metamucil, NyQuil and Oral B,

(2) Household Care: Tide, Gain, Dash, Ariel, Downy, Frebreeze, Dial, Joy, Cascade, Swiffer, Mr. Clean, Crest, Iams, Eukanuba, and Pringles,

(3) Grooming: Gillette, Mach 3, Venus, Braun, Duracell,
            (4) Family and Baby Care: Pampers, Luvs, Charmin, Bounty, Puffs.

The company has grown earnings and dividends 9-11% for the last 10 years on a 15-17% return on equity.  Management’s expects to continue this record because of:

(1) its aggressive expansion of its portfolio of brands through both acquisitions and new product development,

(2) its powerful marketing effort,

(3) expand rapidly into faster growing developing countries,

(4) emphasize a faster growing, higher margin product mix [e.g. health and beauty care products] and divest lower margin/non core operations,

(5) generates strong cash flow to not only finance the strategy described above but to also conduct a huge stock buy back program as well as raise its dividend every year.

 Negatives:

(1) subject to commodity cost inflation and currency fluctuations,

(2) it is in an intensely competitive industry,

(3) sluggish growth in developed markets.

            PG is rated A++ by Value Line, has a 21% debt to equity ratio and its stock yields 3.0%.

Statistical Summary

                 Stock      Dividend         Payout      # Increases  
                 Yield      Growth Rate     Ratio       Since 2004

PG             3.0%          8%               54%             10
Ind Ave      2.3            10                   44                NA 

                Debt/                       EPS Down       Net        Value Line
                Equity         ROE      Since 2004      Margin       Rating

PG            21%           17%            3                 15%          A++
Ind Ave     48              16              NA               8              NA

         Chart

            Note: PG stock made good progress off its March 2009 low, surpassing the downtrend off its September 2008 high (straight red line) and the November 2008 trading high (green line).  Long term the stock is in an uptrend (blue lines).  Intermediate term, it is in a trading range (purple lines).  The wiggly red line is the 50 day moving average.  The Dividend Growth Portfolio owns a 75% position in PG.  It is currently on the Dividend Growth Buy List; the lower boundary of its Sell Half Range is $109.



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