With over 120 consecutive years of payments under its belt, consumer goods giant Procter & Gamble (PG +0.15%) is one of the sturdiest dividend payers you can find. However, as earnings growth has slowed in recent years, the company's payout ratio has surged higher -- approaching two-thirds of P&G's earnings. Is it time for investors to worry about the growth prospects for this century-old dividend?
PG Payout Ratio (TTM) data by YCharts.
In the video below, Fool contributor Demitrios Kalogeropoulos says it isn't, arguing that P&G's dividend is very safe -- for at least two reasons. First, the company's earnings have been depressed lately by foreign currency issues. If you strip those out, you get a much more comfortable picture of earnings growth as compared to the dividend. For example, last quarter's 5% profit jump was closer to 17% after accounting for currency translations, easily above the 7% dividend boost that P&G declared for the year.
Second, Demitrios highlights Procter & Gamble's ability to generate mounds of cash. At $7 billion over the last nine months, the company's free cash flow amply covered the $5 billion that was paid out in dividends over the same period. That's why P&G's payout has plenty of room to continue growing in the years ahead despite stubbornly slow profit gains.
