The Dow Jones Industrial Average has always been home to the country's biggest companies across industries, from consumer goods to healthcare and financials. These are players with staying power and generally a long history of earnings and share price growth. If you look at Dow Jones performance over time, you'll see it's a winner, up more than 120% over the past decade.
So, if you bet on the Dow Jones as a whole -- for example, through the SPDR Dow Jones Industrial Average ETF -- over the long term, you're likely to reap rewards. Now here's how you can add to those rewards -- by also investing in a Dow Jones company known for dividend growth. This can considerably supercharge your gains over time, regardless of the stock market's performance. Let's check out a Dow Jones stock that's a no-brainer buy for dividend growth.
Part of the Dow for 90 years
This particular company is likely one you know well -- and you probably even contribute to this player's earnings on a regular basis. A consumer goods giant, it sells major brands including Tide laundry detergent, Bounty paper towels, and Head & Shoulders shampoo. I'm talking about Procter & Gamble (PG -0.78%), a company that's been part of the Dow Jones for more than 90 years.
P&G has paid out dividends for 133 years and has boosted those payments for the past 67 -- a track record of increases that puts P&G on the elite list of Dividend Kings. If you're investing in P&G today, why should you care about the past dividend increases? Because it shows rewarding investors is important to the company so it's likely to continue with this policy into the future. That means you're not looking at just a fixed payment every year, but one that will grow over time.
Today, P&G pays an annual dividend of $3.76 per share, representing a dividend yield of 2.60%, higher than the average of 2.2% for household product companies, according to NYU Stern Business School data.
Not only is P&G committed to passive income growth, but it also has the financial resources to keep increasing and distributing these dividends. The company paid out 65% of its free cash flow in dividends over the past year -- and free cash flow has increased over time to more than $13 billion.
PG Free Cash Flow data by YCharts
So, P&G is a top buy for dividend growth -- but you'll also like the stock for its long-term earnings story. Thanks to the top brands mentioned above across 10 product categories, P&G has grown revenue and profit over time.
P&G's pricing power
The company's strategy of focusing on daily use products and making them the best out there has helped it build brand strength, which has translated into loyalty among many shoppers even in a difficult economic environment. Thanks to this, P&G has pricing power, meaning it's been able to increase prices in today's rising inflation situation and keep consumers coming back.
In the recently completed fiscal year, organic sales -- which exclude foreign currency impact, acquisitions, and divestitures -- advanced 7%. And currency neutral net earnings per share climbed in the double digits. In the April through June quarter, the last quarter of the fiscal year, all five business segments -- beauty, grooming, healthcare, home care, and family care -- reported increases in organic sales.
Of course, rising inflation has increased costs for the company, and some budget-conscious shoppers will opt for cheaper brands in a difficult economy. Negative currencies also represent periodic headwinds for a player like P&G that sells its products globally. But this consumer goods giant has managed to grow in spite of these temporary challenges and keep its products in many shoppers' carts.
And this strength, along with the promise of dividend growth, make P&G a no-brainer addition to your portfolio right now.
