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Is Procter & Gamble Still a Great Dividend Stock?

By Parkev Tatevosian, CFA – Oct 26, 2021 at 6:33AM

Key Points

  • Procter & Gamble gives income-seeking investors a dividend yield of 2.4% at its current share price.
  • The company has survived a myriad of challenges over the years and maintained its dividend payment.
  • At a price-to-earnings ratio of 25.75, the stock is fairly valued around its historical average.

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The company has a long history of paying and increasing dividends.

Procter & Gamble (PG -0.41%) is one of the most reliable dividend-paying companies, with a history of a whopping 131 years of dividend payments. Reliability is one of the most critical factors in a dividend stock for income-seeking investors -- you want to know the company can pay a dividend in good times and in bad. And with a 131-year history of paying dividends, Procter & Gamble has certainly endured its share of challenges and sustained its payment throughout.

Let's look at Procter & Gamble and determine if it is still a great dividend stock. 

People cleaning windows.

Image source: Getty Images.

Procter & Gamble can sustainably increase dividend payments

A company pays dividends out of the earnings it generates in normal business operations. If a company pays more in dividends than it makes in profits, it will eventually run out of cash. In that area, Procter & Gamble is on a solid footing. Annual net income in the last decade has been the highest in the company's history.

PG Net Income (Annual) Chart

PG Net Income (Annual) data by YCharts

Procter & Gamble's dividend payout ratio, the percentage of earnings it pays in dividends, was 59.5% in fiscal 2021. That means there is plenty of room for the company to continue paying at its current rate. There is also room for Procter & Gamble to increase its dividend, something it has done for 65 years now. Income-seeking investors who buy Procter & Gamble stock are not only likely to get a sustained dividend payout, but are also likely to get annual increases in that payout.

PG Payout Ratio Chart

PG Payout Ratio data by YCharts

The effects of the coronavirus pandemic on Procter & Gamble 

The company faces some near-term headwinds from rising costs and supply chain disruptions caused by the coronavirus pandemic. Combined, management expects the adverse effect to have a $2.3 billion impact on the bottom line in fiscal 2022. However, that's no cause for investors to avoid the stock. To offset the impacts of rising costs, it's implementing price increases across its portfolio of products.

In the long run, one of the lasting effects of the pandemic could be an increase in demand for its products. Remote working is expected to be a more significant part of world economies even after the pandemic. Folks spending more time at home are likely to eat more at home, do more laundry -- and, as a result, have more occasions to use P&G products. 

Procter & Gamble's dividend yield is 2.4%

Overall, Procter & Gamble has a long history of paying dividends. The company has survived a myriad of challenges over the years and maintained its dividend payment. The most recent in the host of difficulties is the coronavirus pandemic. One of the reasons it's been able to endure this long is the nature of the products it sells. Consumer staples like paper towels and laundry detergent are used by households regardless of the economic cycle.  

PG PE Ratio Chart

PG PE Ratio data by YCharts

Procter & Gamble will give income-seeking investors a dividend yield of 2.4% at its current share price. Procter & Gamble's stock is not expensive either: At a price-to-earnings ratio of 25.75, the stock is fairly valued around its historical average. Procter & Gamble still appears to be a great dividend stock.

Parkev Tatevosian has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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