Image source: Getty Images.
Dividend stocks of stalwart consumer goods companies are the cornerstones of a healthy retirement portfolio. These companies often have brands and products that have stood the test of time, and they often reward shareholders handsomely for buying the stock.
Procter & Gamble (PG 0.39%) is one such company. The $230 billion conglomerate owns everything from Gillette razors to Tide detergent to Pampers diapers. In total, 22 of the company's brands generate over $1 billion per year, while 19 bring in more than $500 million. Unsurprisingly, after factoring in its dividend, that has led to superior results for investors.
PG Total Return Price data by YCharts.
Since just after the turn of the millennium, shares have more than tripled the S&P 500. Today, the stock is yielding a juicy 3.1% yield. But what will 2017 hold for investors?
The two variables that matter the most
In the end, there are only two factors we really need to focus on to see if that sizable yield will increase even more next year.
The first is the company's history of dividend payments. Procter & Gamble has upped its payout for 62 consecutive years. Over the past five years, those increases have averaged 5.8% annually. Clearly, that bodes well for shareholders.
But it would be (small-f) foolish to assume that the future will be the same as the past. To check on the health of Procter & Gamble's dividend yield, it's worth looking at the company's free cash flow -- and how much of it the company is using to pay shareholders their dividends.
This is what dividend health in stalwarts should look like. Procter & Gamble has never really used more than two-thirds of its free cash flow on dividend payments. And given the strong year the company just came off, that payout ratio dipped all the way down to 61%.
Moving forward, I don't think it would be far-fetched for investors to expect similar 6% bumps moving forward. While some argue the company is far too expensive for a stalwart -- trading at 24 times earnings -- a drop in the stock would actually be advantageous to long-term investors. Automatic dividend reinvestment would allow you to get more shares with each dividend payment than you otherwise would.
While this doesn't include a deep dive into all of the company's reporting divisions and their relative health, the answer to the question posed in the title is clear: It is highly likely that Procter & Gamble will increase its dividend in 2017. Moving forward, I see the payout being in the ballpark of $2.84 per share. At today's prices, that's a yield of 3.25% -- which makes for a pretty good retirement portfolio investment.
