What sets a world-class dividend stock apart from an average or subpar one? It's arguably the ability to continue growing a dividend, regardless of what may be transpiring in the world.
Dividend stocks don't get any better than the Dividend Kings, a group of just 44 stocks that have raised their dividends for at least 50 years straight. With 66 consecutive years of dividend growth under its belt, Procter & Gamble's (PG 0.60%) streak is among the best of the best.
But should income-oriented investors purchase the stock at this time? Let's dive into Procter & Gamble's fundamentals and valuation to find out.
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A solid year for the business
Procter & Gamble (P&G) reported $80.2 billion in net sales during its fiscal year ended June 30, which equates to a 5.3% year-over-year growth rate. What was behind the company's decent net sales growth in fiscal year 2022?
Well-known brands were once again at the core of P&G's continued success last fiscal year. Over many decades, brands such as Luvs baby diapers, Bounce dryer sheets, and Bounty paper towels have become indispensable to millions of consumers around the world.
The extensive depth of the company's brand power allowed each of its five core business segments to log low-single-digit to high-single-digit net sales growth during the year. The beauty and grooming businesses recorded 2% growth over the year-ago period. The baby, feminine, and family care business posted 5% year-over-year net sales growth. The fabric & home care business delivered 6% net sales growth over the year-ago period. Finally, the healthcare segment put up 9% year-over-year net sales growth.
P&G as a whole was able to produce 4% net sales growth in fiscal year 2022 through price increases that were passed on to consumers. Due to its brand power, product volume grew by 2% over the year-ago period.
Above-average net sales growth in the healthcare segment was a positive contribution of 1% to net sales mix. This was more than offset by a 2% headwind on foreign currency translation, stemming from a stronger U.S. dollar, which is what the company's international net sales are converted into for financial reporting purposes. These factors explain how P&G's net sales increased 5.3% year over year.
The company's diluted earnings per share (EPS) surged 5.6% higher over the year-ago period to $5.81 during the fiscal year. P&G's higher net sales were partially neutralized by a 40-basis point year-over-year decline in net margin to 18.4%, which was due to increased costs stemming from inflation. This was more than made up for by a 2.4% reduction in its weighted-average outstanding share count of 2.5 billion for the fiscal year. That explains how diluted EPS grew ahead of net sales in fiscal year 2022.
Dividend growth is poised to endure
P&G offers investors a 2.5% dividend yield. For context, this is significantly higher than the S&P 500 index's 1.5% yield. And investors can rest assured that the company's status as the consumer staple with the longest dividend growth streak will continue for many more years.
P&G's dividend payout ratio was manageable at 60.6% in the previous fiscal year. This gives the company a big enough buffer to maintain its dividend in case profits were to temporarily decline. And it also provides P&G the capital necessary to keep investing in its business, which is why analysts are expecting nearly 5% annual earnings growth through the next five years.
The valuation is still within reason
P&G is a gem of a business. Yet the stock doesn't appear to be too excessively valued.
P&G's forward price-to-earnings (P/E) ratio of 24 is moderately above the S&P 500 consumer staples industry's average forward P/E ratio of 21.5. The stock isn't a bargain buy at the current valuation, but this premium is well deserved, considering P&G's track record and growth prospects.
