I'm Holding This "Old Faithful" Stock -- For Now...

Nathan Slaughter's picture

Tuesday, May 21, 2019 - 2:30pm

by Nathan Slaughter

It's long been considered the "Old Faithful" of dividend payers. That's because this stock has raised dividends like clockwork for 63 consecutive years and hasn't missed a distribution since 1890. 

You won't hear about it much in the mainstream financial media. Why? Because it can help you get rich slowly -- and that's just not as sexy as the daily swarm of earnings reports, geopolitics, unicorn startup IPOs and tech advances. 

Meanwhile, the stock set a new all-time peak of $108.68 on May 16. By itself, that's a notable accomplishment. But that was also the 27th record high for the stock since the beginning of January, the most at this point in a calendar year since 1972.

I'm talking about consumer products giant Procter & Gamble (NYSE: PG).

PG chart

Most companies would kill to have a billion-dollar brand. P&G has more than two dozen, including Tide laundry detergent, Bounty paper towels, Crest toothpaste, Duracell batteries and Gillette razors. These products are found in 180 countries around the globe and reach more than 5 billion consumers.

Admittedly, the company's portfolio of brands has also become a bit bloated, and sales have been sluggish in recent years. But as you might expect, the recent bullish run coincides with improved operating performance. 

P&G logo

Management has responded by shedding dozens of non-core lines and underperforming brands. It has also introduced productivity and cost-savings initiatives. Those streamlining efforts are paying off. Excluding divestitures and acquisitions and the negative impact of foreign currency exchange, organic sales rose 5% last quarter. While that may sound modest, it's more than double the pace from recent years.

Both shipment volume and pricing are on the rise. And thanks to margin expansion, P&G was able to turn that healthy top-line growth into a stronger 15% increase in core earnings.

Looking ahead, the company has just upped its full-year sales growth forecast and is expecting earnings to climb as much as 8% over 2018 (even after losing $1.4 billion to higher raw material costs and negative currency exchange).

It's worth noting that free cash flows are running at 100% of reported net income. As a result, management expects to return $12 billion to stockholders this year -- $7 billion through dividends and $5 billion through share repurchases. 

Action to Take 
P&G has soundly beaten earnings estimates for 16 consecutive quarters. And the market has responded, driving the shares up 49% over the past 12 months -- double the industry average of 23%. We also just got another 4% bump in the quarterly dividend to $0.746 per share.

Thanks in part to the bullish run in the stock, that only puts the yield at 2.7% right now. But we're also taking about one of the most consistent dividends on the planet. 

The 48% gain my Daily Paycheck readers and I have made on this stock over the years has been one of the easiest pitches we've had the chance to swing at, so I am inclined to see how far this rally goes. But I'll also be looking to take some profits if it starts to falter.

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Nathan Slaughter does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC does not hold positions in any securities mentioned in this article.