Procter & Gamble (PG 1.19%) has paid a dividend in each of the last 127 fiscal years -- ever since the company's birth in 1890. Its streak of yearly raises dates back 61 consecutive years, which is one of the longest track records of dividend growth in the stock market and gives P&G the status of a Dividend Aristocrat.

P&G is set to report a big profit drop in the year ahead, and it might struggle with minor market-share losses in an overall weak industry. Yet those challenges won't seriously threaten this dividend. In fact, income investors have every reason to expect a raise in 2018 that extends P&G's streak to 62 years.

Tide Pods and laundry detergent.

Image source: Procter & Gamble.

Modest growth rebound

After announcing solid first-quarter results in late October, P&G is on pace to boost organic sales by about 2.5% in the fiscal year that ends in August 2018. That expansion rate is modest, and it implies continued, but slight, market share losses.

Still, it's a better number than investors have witnessed in the recent past. Organic sales rose by just 1% in fiscal 2016 and by 2% in fiscal 2017, and so P&G appears to be in a slow, but steady, operating rebound.

P&G's faring better than many of its rivals, too. Kimberly Clark (KMB 1.09%), whose Huggies diapers compete against P&G's Pampers brand, posted flat organic growth in its most recent quarter and is predicting near-zero sales gains for the full 2017 fiscal year.

Better earnings 

P&G's reported earnings are on pace to dive by 27% in fiscal 2018 due to a massive, one-time benefit that the company logged from selling a large chunk of its beauty product brands in the prior year. That divestment was part of a portfolio reboot plan that removed 100 slower-growing franchises from the business. It also generated a temporary earnings spike, which P&G used mainly to fund increasing stock repurchase spending.

After accounting for those portfolio divestment sales, investors can expect healthy growth this year that significantly outpaces revenue gains. After all, management is aggressively cutting costs and sees room to generate a further $10 billion of savings, which would double its cuts since 2012. This initiative improved P&G's already impressive profit margin, and it played a key role in protecting earnings even as sales growth slowed in recent years.

KMB Operating Margin (TTM) Chart

KMB Operating Margin (TTM) data by YCharts.

How much of a dividend increase?

Executives are targeting core earnings growth of between 5% and 7% this year, up from 2017's $3.92-per-share result. Thus, P&G could afford to increase the dividend while still holding its payout ratio at an elevated, but not dangerous, 67% of profits.

Chart showing P&G's annual dividend raises.

Data source: P&G. Chart by author. 

Income investors shouldn't count on a robust dividend increase in 2018, though. P&G prioritizes financial flexibility, after all, which is the main reason why management has leaned heavily on stock buybacks as its primary capital return method. Its last two annual dividend increases have been modest: a 3% raise in 2017 and a 1% uptick in 2016. Those raises trailed the 5% hike that Kimberly Clark gave its shareholders in each of those periods.

Ultimately, I wouldn't be surprised to see P&G's 2018 dividend hike, typically announced in April, to come in somewhere between 3% and 5%. A modest increase like that would reflect the company's continued market share struggles in a slow-growing industry while still rewarding investors as profitability improves.