This article originally appeared on The DIV-Net January 5, 2009.
Linked here is a detailed quantitative analysis of Procter & Gamble Co. (PG). Below are some highlights from the above linked analysis:
Company Description: The Procter & Gamble Company (P&G) is focused on providing branded consumer goods products. The Company markets its products in more than 180 countries.
Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description:
- Avg. High Yield Price
- 20-Year DCF Price
- Avg. P/E Price
- Graham Number
PG is trading at a discount to 1.) and 3.) above. Since PG’s tangible book value is not meaningful, a Graham number can not be calculated. If I exclude the high and low valuations and average the remaining two, PG is trading at a slight discount. PG earned a Star in this section since it is trading at a fair value.
Dividend Analytical Data: In this section I consider five factors, see page 2 of the linked PDF for a detailed description:
- Rolling 4-yr Div. > 15%
- Dividend Growth Rate
- Years of Div. Growth
- 1-Yr. > 5-Yr Growth
- Payout 15% of avg.
PG earned two Stars in this section for 3.) and 4.) above. PG has paid a cash dividend to shareholders every year since 1891 and has increased its dividend payments for 52 consecutive years. It’s one year dividend growth rate exceeded its 5-year growth rate. This could indicate the growth rate is accelerating.
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:
- NPV MMA Diff.
- Years to >MMA
PG earned one Star in this section for 1.) above. The NPV MMA Diff. of the $5,179 is in excess of the $2,500 minimum I look for in a stock that has increased dividends as long as PG has. If PG grows its dividend at 10.7% per year, it will take 7 years to equal the cumulative earnings from a MMA yielding an estimated 20-year average rate of 3.54%.
Other: PG is a member of the S&P 500, a Dividend Aristocrat and a member of the Broad Dividend Achievers™ Index. Product demand for household and personal care products is generally stable and not affected by changes in the economy or geopolitical factors. PG has historically delivered consistent sales and earnings growth near the high end of its peer group, and I see no reason for this to change over the next several years. The company continues to benefit from the Gillette acquisition and from growth prospects in new markets and categories. PG is well positioned to benefit from growth of household and personal care products in developing countries. Risks include heightened competition, unfavorable currency translation, higher commodity costs, higher promotional spending and low consumer acceptance of new products.
Conclusion: PG earned one Star in the Fair Value section, earned two Stars in the Dividend Analytical Data section and earned one Star in the Dividend Income vs. MMA section for a net total of four Stars. This quantitatively ranks PG as a 4 Star-Buy.
Using my D4L-PreScreen.xls model, I determined the share price could increase to $66.10 before PG’s NPV MMA Differential fell to the $3,000 that I like to see. At that price the stock would yield 2.19%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the needed $3,000 NPV MMA Differential, the calculated rate is 8.9%. This dividend growth rate is below the 10.7% used in this analysis, providing a margin of safety.
PG is one of the true quality blue chip dividend stocks. I will continue to add to my position below my buy price of $66.10. For additional information, including PG’s dividend history, please refer to its data page.
Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.
Full Disclosure: At the time of this writing, I was long in PG (2.4% of my Income Portfolio) .
What are your thoughts on PG?