There are growth investors. There are value investors. And then there are some investors who only want dividends.
When you're looking for businesses that send their shareholders a check every three months, it helps if the company dominates its industry. It's also beneficial if it has a long and steady history of payouts.
Procter & Gamble (PG +0.25%) passes this test with flying colors. In fact, it just raised its dividend for a whopping 68th straight year. Should you buy this top consumer staples stock right now?
Durability is key
If a company is able to pay a rising dividend for nearly seven decades, it must possess some positive attributes that have worked in its favor. I believe there are three key factors investors should know about Procter & Gamble.
This company has a wide economic moat that is supported by its powerful brand recognition. It's not uncommon to see Procter & Gamble's various industry-leading products, like Tide laundry detergent, Head and Shoulders shampoo, and Crest toothpaste, at the top of their respective markets. Consumers develop habits around these items and build loyalty over the years. As a result, the company is able to flex its pricing power.
I also think Procter & Gamble is somewhat insulated from a recessionary scenario. The products this business sells are essential to the daily lives of customers, so sales aren't likely to take a huge dip in economic downturns. Net sales dropped 3% in 2009 during the Great Recession, only to climb higher in subsequent years. Margins held up well then, too.
Having a strong brand that experiences steady demand supports this final point, which is that Procter & Gamble is consistently profitable. In a world where investors easily fall in love with growth tech stocks that aren't generating income, this business stands out as a safe and sound operation.
In the past five years, Procter & Gamble's gross margin and operating margin have averaged 49% and 23%, respectively. This resulted in sizable amounts of free cash flow that helps fuel dividend payouts. The business spent $16.4 billion on dividends and share repurchases in fiscal 2023.
And given that Procter & Gamble's earnings per share have demonstrated an ability to rise over time, investors can be optimistic that the dividend payout will continue going up as well.
NYSE: PG
Key Data Points
A buying opportunity for certain investors
If you're an investor who cares most about receiving consistent income from the stocks you own, then Procter & Gamble might look like a no-brainer buy. Its current dividend yield of 2.6% might not have you screaming from the mountaintops. But just in the past decade, its annual payout has increased by 56%.
That's a pretty remarkable gain. I think it's reasonable to expect this trend to continue in the decades ahead. Dividend investors have a lot to be excited about.
On the other hand, if you're an investor whose sole aim is to buy stocks that have the chance to beat the market over the long term, then it's a good idea to think twice before adding Procter & Gamble to your portfolio. In the past five- and 10-year periods, this stock actually underperformed the S&P 500. And that's if you include dividends.
In my opinion, there's no reason to believe that this track record will be different going forward. Procter & Gamble is a mature business with limited growth opportunities. Those looking for the potential to earn higher returns need to consider other stocks.
