If you had to own just one stock forever what would it be?
You'd want to own a stable company built for the long haul, a company with diverse products who sells into many international markets, and of course a steady income stream from a dividend would be a huge plus.
In a fast changing world it may not seem like there are many companies like that but there's one stock every dividend seeking investor should know about: Procter & Gamble (PG +2.07%).
Stable companies make for stable dividends
If you're going to own a dividend stock forever there has to be a solid company behind it. There are few companies as stable as Procter & Gamble, who makes consumer staples like toilet paper, paper towels, batteries, and cleaning supplies. These products may seem boring but that's one of the reasons they're so consistent. They're not constantly being replaced by new innovations like a tech or Internet company might deal with.
This stable set of products has led to steadily rising revenue and earnings over the past two decades on what is relatively steady returns on assets by corporate standards.
PG Return on Assets (TTM) data by YCharts
The steady products and steady returns on the capital invested in the business allows management to continually give money back to shareholders, something that's been going on for longer than you and I have been alive.
Procter & Gamble has a long, long history of dividends
Here's a fact that will blow your mind. If you had given the oldest documented person alive a share of Procter & Gamble when they were born they would have received a dividend every single year of their life. Yes, since 1890 Procter & Gamble has been paying dividends and its payout has increased for the past 58 consecutive years.
That's a testament to the consistency of Procter & Gamble and its ability to diversify into new products and new locations. This broad diversification allows management to be confident in returning capital to shareholders.
But there's also a culture that goes along with a dividend like that. Management clearly prioritizes its growing dividend and that can keep them from making frivolous acquisitions or investing in high risk R&D. In a company the size of Procter & Gamble they can focus on the cream of the crop and invest in building their brands to last for decades.
What about the future of Procter & Gamble?
Procter & Gamble clearly has a history of solid returns and dividends for shareholders but can that last over the next 10, 20, or even 100 years?
One way to look at this is a quick look at Porter's five forces, an analysis tool that looks at the threats to a business long-term.
Porter's Five Forces. Image source: Grahams Child via Wikimedia.
The first thing we can call a low threat is the threat of substitute products. I don't know about you but I think toilet paper, diapers, and laundry detergent will be here for decades to come. We can also call the threat of a new entrant fairly low. Procter & Gamble dominates retail store shelf space in its product categories and it would be extremely difficult to crack that market as a new company.
Customers have bargaining power in the respect that retailers can buy product from another company, but few companies have the scale to create products with the low cost of Procter & Gamble so this is only a medium threat. Bargaining power of suppliers is also fairly low because most of their manufacturing inputs are commodities.
Finally, competition within the industries Procter & Gamble serves may be the biggest long-term threat. Whether it's diapers, cleaning products, or paper towels, there are large manufacturers they're competing with everyday and that'll keep margins relatively low compared to higher tech businesses.
Overall, Procter & Gamble operates in an industry that's competitive but only with a few other large manufacturers and they have something like an oligopoly with an incentive to not lower margins too far or be too competitive. And there's little threat of someone toppling their business with new products or innovations.
I think Procter & Gamble will be around for decades, if not centuries, to come and they've got a dividend that I would expect to count on for the rest of my lifetime. If you're only going to own one dividend stock this would certainly be at the top of my list.
