Procter & Gamble (NYSE:PG) is a favorite among income investors looking for reliability because the company has paid a dividend for the past 124 years without fail. However, the consumer products conglomerate is in a transitional period now as it attempts to recover from over extending itself in emerging markets. Procter & Gamble also faces currency challenges, as the majority of its income is currently generated overseas. With near-term uncertainty in P&G's business, investors may be better served with other high-growth dividend stocks.
Joe Tenebruso (Starbucks): Proctor & Gamble is an excellent company with a well-proven history of returning cash to its shareholders in the form of a steadily growing dividend. In fact, after more than five decades of consistently raising its dividend payout, Procter & Gamble has earned its place among the fabled dividend aristocrats.
Yet, while I can certainly understand the allure of such a reliable business, I believe it's more valuable for investors to look ahead rather than at what's already occurred. So I'm more interested in businesses that can grow their dividends at a high-rate from this point forward. And in that regard, few companies shine brighter than Starbucks.
Starbucks currently yields about 1.4% -- less than half of the 3% yield Procter & Gamble currently offers. Yet Starbucks recently raised its dividend by 23%, compared with P&G's most-recent dividend increase of 7%. I expect Starbucks to continue to grow its payout at a significantly higher rate than Procter & Gamble in the years ahead. That's because sustainably high dividend growth requires strong earnings and cash flow growth, as a company cannot consistently pay out more than the cash it brings in. And here again, Starbucks is set to outpace P&G.
Analysts expect Starbucks to grow its earnings by more than 18% per year over the next five years. Expectations for Procter & Gamble are far more moderate; Wall Street projects that P&G's earnings will rise by less than 7% per year during that time. And while slowing growth recently forced Procter & Gamble to lower its year-ahead guidance, Starbucks reaffirmed its impressive fiscal 2015 growth targets after delivering expectation-beating earnings results.
All told, both Starbucks and Procter & Gamble are top-tier dividend stocks. But with far greater growth prospects in the foreseeable future, I believe Starbucks is the tastier choice.
Bob Ciura (UL): The stock which I believe has a more attractive dividend than P&G is European consumer staples giant Unilever. P&G is obviously a legendary company all its own, and its huge portfolio of strong brands will likely reward investors for many years. But that doesn't mean there isn't a better option, and I view Unilever as a stronger dividend stock to buy right now.
That's because Unilever has a huge lead in the emerging markets. Unilever currently derives around two-thirds of its sales from emerging markets, such as China and Brazil. Unilever's emerging-market revenue grew 5% last year. In the same period, sales in its developed markets declined fractionally. This shows the discrepancy in growth between under-developed nations like the BRIC (Brazil, Russia, India, and China) countries, versus the slower growth in established markets like North America.
By comparison, P&G derives two-thirds of its revenue from North America and Europe, which are very developed regions of the world. P&G only generates around one-third of its revenue from developing regions such as Asia, Latin America, India, Africa, and the Middle East. Not surprisingly, P&G's weaker exposure to the emerging markets is inhibiting its growth. Organic sales grew just 2% last quarter.
In addition, Unilever investors get a little more income than P&G investors. According to Yahoo Finance, Unilever's trailing four dividend payments, converted into U.S. dollars, translate to a 3.4% yield at its recent stock price. For its part, P&G offers a 3% yield. This means Unilever investors receive 13% more income for every dollar invested.
Because of its higher current dividend yield and its advantage in the emerging markets, which should provide for higher dividend growth than P&G, I believe Unilever has the stronger dividend.
Tamara Walsh (PepsiCo): Similar to Procter & Gamble, PepsiCo boasts a rich history of rewarding shareholders through dividends and share buybacks. The soda and snack giant has paid a dividend every year since 1952, and has increased its payout for the past 42 consecutive years. However, past performance is only part of the story.
Fueled in large part by its Frito-Lay business, Pepsi generates loads of cash (more than $8 billion in free cash flow last year), which means the company should have no problem continuing to raise its dividend for many years to come. Moreover, its snack division now boasts 22 brands that each pull in annual sales north of $1 billion. Perhaps, more importantly, PepsiCo does a great job of using this cash to both grow its business as well as to reward shareholders.
Last year, for example, Pepsi returned a total of $8.7 billion to shareholders through $3.7 billion in dividends and $5 billion in share repurchases. Looking ahead, the company plans to return as much as $9 billion to shareholders in 2015. On top of this, Pepsi said it would increase its dividend 7% in June 2015 to $2.81 per share annually, up from $2.62 per share. This is better than P&G's annualized dividend of $2.57 today. Additionally, Pepsi's management recently approved a new share buyback program of up to $12 billion over the next three years.
Together, these things indicate that Pepsi's shareholders will enjoy steadily increasing cash payouts in the form of dividends for many more decades.
Bob Ciura owns shares of PepsiCo. Joe Tenebruso has no position in any stocks mentioned. Tamara Rutter owns shares of PepsiCo and Starbucks. The Motley Fool recommends PepsiCo, Procter & Gamble, Starbucks, and Unilever. The Motley Fool owns shares of PepsiCo and Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.