It will be interesting for us to see what The Procter & Gamble Company’s next dividend increase will be.NYSE:PG). In the last four quarters, management paid $0.87 per quarter to the company‘s shareholders. This is the next payment, which will keep P&G afloat.‘s dividend aristocrat records intact) will be more than $0.87 per shares. Many of the company’s employees have a question.Therefore, shareholders of’s are asking how much the increase will actually be.
Despite P&GIts impeccable record in increasing its dividend is an indication of its strength. With six interest increases already earmarked for this year by the Fed, the 10-year US bond has risen to nearly 2.3%. It is obvious that yields will rise at this stage. P>he current yield of’s dividend is 2.32%, which is only a fraction higher than the 10-year US bond. It is now accepted that a US Treasury Bond is the safest investment. P&G’s claims, it is true.The 65+ year record of dividend growth by the company and its loyal shareholders show that dividend growth is an important way to preserve purchasing power.
Let’s thereforeLet’s take a look at P&G’s key financial indicators that make up its dividend to determine if there’s any way to increase the payout in a meaningful way.
The 12-month dividend growth rate is very strong in the near-term. (TTM)9.05%. In effect, P>he company’s dividend grew almost twice that of the average company within this sector last fiscal year. This is a positive trend given the P&G 6+ decade growth record. P&G’s growth is evident.While the industry has remained in the low-single digits,’s dividend has increased.
|Dividend Growth Rate||12 Months||3 Year||5 year||10 Year|
|Procter & Gamble||9.05%||6.64%||5.37%||5.18%|
We can see if this impressive rise was funded by internal cash flow by looking at the cash-flow statement. In the past four quarters, $8.56 Billion in dividends were paid from a $14.88 Billion free cash flow kitty. This gives us an average pay-out ratio (57.5%) that is slightly lower than P>he five-year average of 60.93% was 60.93%. P&G continues generating ample cash flow, even though it is not core affordable. ExpansionTo keep growing the dividend meaningfully
P&G became a smaller company almost overnight due to the divestiture or close to half its assets BrandsIn recent years, operating profits have easily surpassed EBIT numbers before the split. P&G has also been able to increase its operating profit despite the split.The company’s debt-to-equity ratio has increased to 0.51. One must also note the significant rise in treasury stock, which is shares that have been purchased but not yet retired, in recent years. If we actually add to the companyThe $121 billion of treasury stocks was returned to the companyThe current equity is $44.89 billion. The new adjusted debt-to-equity ratio would be 0.13, which is in line to historical trends for P&G.
Even though long-term debt remains well above $20B, EBIT growth (6% average annual increase over the past five year) has been there. P>he company’s interest coverage ratio is now at 41.45, which is a 12-month average. This is one of our highest 12-month trailing numbers. It is clear that the lower the income, the easier it is to grow the dividend moving forward.
Earnings growth is expected to be less than 5% in the current fiscal year. Analysts who cover P&G expect that bottom-line growth will rebound to 8% in fiscal 2023 and the next year. These assumptions are supported with profitability trends. We could easily see net margins of 20% in three years (18.5% currently TM).
So, in summary, even though there are many murmurs around P&GBecause of its high valuation, many investors are investing in this name for the long-term. The real question investors should ask themselves is if the growth they are receiving is satisfactory. Future outcomes and P&G are determined by current trends.All of the numbers relating to’s cash flow, profitability, growth, and other indicators point to the dividend’s steady growth over time. We look forward to continuing coverage.