Procter & Gamble (PG -0.30%) has one of the longest streaks of consecutive annual dividend hikes on the stock market. It's a track record that leaves little mystery about whether the consumer staples giant will announce another raise each April.
But the level of the hike is often a surprise, and management updates shareholders on its short-term growth forecast at around the same time. Here's what the company's April updates might mean for shareholders and prospective buyers of the dividend stock.
The new dividend
P&G's next quarterly dividend will be $0.94 per share, and the 3% hike brought its string of consecutive annual increases to 67 years. P&G paid dividends before that streak began, too -- it has been sending regular payments to shareholders since 1890.
Investors might have been underwhelmed by this year's increase. Last year's hike was 5%, after all, and sales trends are still holding up well with organic sales up by 7% in the most recent quarter.
Yet P&G's earnings are under pressure from inflation and currency exchange rate shifts, among other issues. These two factors will reduce its profits by about $3.5 billion in its fiscal 2023 (which ends June 30), executives estimate. In the context of the fiscal year's expected flat earnings, the 3% payout increase looks more generous.
Strong momentum
There are other good reasons to like the stock. P&G demonstrated its pricing power by boosting average prices by 10% last quarter. True, that helped push sales volumes lower. Yet its overall organic sales trends are solid, and management just increased the 2023 outlook for growth. "We delivered strong results," CEO Jon Moeller said in the fiscal third-quarter press release published in mid-April.
Wall Street is even happier about the fact that the company's operating profit margin has stabilized. After falling for most of the past year, this core financial metric ticked higher in fiscal Q3 thanks to the combination of price increases, cost cuts, and slight drops in some raw material prices. P&G's 21% margin remains well above rivals like Kimberly-Clark (KMB -0.65%).
Is the stock a buy?
It's easy to see how expanding margins and strong sales trends could power excellent annual earnings over the next few years. An investment in P&G doesn't carry much recession risk, either, given its massive global sales base, its consumer staples focus, and its financial strength. Steadily rising dividend payments will cushion shareholders' returns in the event of a stock market slump, too.
On the downside, the stock isn't cheap. Investors are paying nearly 5 times annual sales for P&G shares, a valuation that isn't far from its pandemic highs. You can purchase Kimberly Clark shares for around half that valuation.
P&G deserves to be priced at a premium, though, due to its industry-leading position and the high likelihood that its earnings will rise at a solid clip over the next few years. Given the attractive balance between risk and potential return, investors should consider putting this stock into their portfolios. With a higher dividend payment on the way, the financial rewards for doing so just became a bit more concrete.
