Procter & Gamble (PG) Continues Its Dividend Hike Trend

In a bid to impress investors, The Procter & Gamble Company’s (NYSE:PG) or P&G’s board of directors approved a 3% hike in its quarterly cash dividend to 68.96 cents per share. The dividend will be paid on or after May 15, 2017 to shareholders of record as on Apr 21, 2017. The new figure will add up to an annual dividend of $2.7584 per share.

The company has consistently increased its dividend. In fact, this increase marks P&G’s 61st consecutive year of dividend hike which reflects the company’s strong cash position and solid balance sheet.

P&G generates strong free cash flow annually. The company has been delivering free cash flow of $10–$11 billion a year for the past four to five years. In fiscal 2016, the company generated operating cash flow of $15.4 billion, compared to the capital requirement of $3.3 billion. Thus, the company was left with a significant cash flow of $12.1 billion. This allows management the opportunity to invest in product innovations, acquisitions and brand development in addition to regularly paying dividends and repurchasing shares.

Meanwhile, P&G is investing in its brands and products and re-designing its supply chain to improve productivity and organic growth. Also, the portfolio-reshaping plan bodes well for the company. Moreover, as part of the Feb 2012 restructuring plan, P&G aims to reduce non-manufacturing or overhead enrollment by 10% over five years. The company expects to generate up to an additional $10 billion of cost savings in areas including supply chain and Cost of Goods Sold (“COGS”), marketing, digitization and promotional spend effectiveness over the next five years (fiscal 2017-2021).

In fiscal 2017, the company anticipates to buy back shares over $5 billion and pay dividend worth over $7 billion. In fact, the company has aggressive plans to return up to $70 billion through dividends and share repurchases, over the next four years.

Investors should keep in mind that P&G's shares have gained around 10.1% in the last one year, comparing favorably with the 8.3% gain of the Zacks categorized Soap & Cleaning Preparations industry. The 10.1% gain also compares favorably with the broader Consumer Staples sector’s growth of 3.6%.

PG Vs. Soap & Cleaning industry

PG Vs. Consumer Staples Sector

We believe that the recent dividend hike will further bolster investors’ confidence in the company’s financials, improve its market position against competitors and lend more upside to the stock.

Zacks Rank & Key Picks

Procter & Gamble carries a Zacks Rank #3 (Hold).

Better-ranked stocks in the industry include Unilever PLC (NYSE:UL) , Unilever N.V. (NYSE:UN) and Colgate-Palmolive Company (NYSE:CL) .

Both Unilever PLC and Unilever N.V. carry a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

For full-year 2017, Unilever PLC’s EPS is expected to grow 17.3% while that for Unilever N.V. is estimated at 7.2%.

Colgate-Palmolive, a Zacks Rank #2 stock, is expected to register 3.4% EPS growth in 2017.

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