For a "boring" company, Procter & Gamble (PG 1.98%) sure has an exciting dividend. At just over 3%, it yields a full percentage point above the broader market's yield. The consumer products giant is also one of just 10 members of the Dow that pay 3% or better to income investors today.
Below, we'll take a closer look at the prospects for continued predicable growth in P&G's unusually high payout.
Long track record
Procter & Gamble's track record for consecutive payout raises is one of the longest on the stock market. It has raised its dividend in each of the last 61 years -- a period that includes recessions, industry downturns, wars, product recalls, political instability, and just about any other selling environment that an investor can imagine. Rival Kimberly-Clark (KMB 2.04%), which competes with P&G's core Pampers diaper brand, sits far behind with a 45-year streak of payout raises.
Image source: Procter & Gamble.
P&G's dividend history demonstrates a willingness by management to reward shareholders with steadily increasing income payments. More importantly, the streak shows that its strategy of owning a wide range of globally dominant consumer product franchises (including Tide, Gillette, Pampers, Downy, and Pantene) delivers dependable results through good and bad operating environments alike.
Ample payout ratio
P&G's $2.70 per share of dividend payments in its most recent fiscal year represented just under half of its earnings haul. That payout ratio would put the company right in line with the broader market and leave lots of room for future market-thumping dividend growth. For context, Kimberly-Clark's payout ratio is 62%.
KMB Payout Ratio (TTM). Data by YCharts.
However, Procter & Gamble's payout ratio isn't as strong as it first appears. After all, the company booked a one-time profit of almost $8 billion by selling off its beauty product line last year. Given that, and the many other financial shifts in the business since 2015 -- during which time the company divested over 100 brands -- it's better to judge the dividend commitment as a function of P&G's earnings from continuing operations. That metric ticked down to 73% last year from 76% in the prior-year period.
This elevated figure helps explain why P&G's dividend has been growing at a relatively slow pace recently. Its 3% boost this year and 1% uptick in 2016 trail Kimberly-Clark's 5% increase in each of those years.
Recent operating trends
P&G's future dividend raises will depend on the company's success at speeding up its growth pace. After dropping to a 1% rate in 2015, organic sales are on track to accelerate for the second consecutive year, up to 2.5% in 2017. That's good news, especially given that Kimberly-Clark is expecting flat results this year.
But even that growth level might not be enough to stop the minor but persistent market share slide that P&G has endured lately. Franchises like Gillette have been losing ground to lower-priced and online-based competition. Unless P&G can find a way to flip that trend, earnings growth and thus dividend increases will likely lag the market.
The high chance of slow sales and profit growth helps explain why P&G's dividend yield is more generous than many other large consumer stocks. That's why income investors seeking aggressive growth may want to look elsewhere.
If consistent, steady growth is your target instead, this is a great dividend stock to consider. Even if the payout merely inches higher over the next few years, after all, it's unlikely that this Dividend Aristocrat will cut -- or even pause -- its dividend increases anytime soon.
