Procter & Gamble: We Expect Solid Returns From This Dividend King Ahead

Procter & Gamble’s dividend yields 3.2% right here, which is roughly one and a half times as much as the broad market’s yield. Procter & Gamble has made three dividend payments at $0.717 per share, which means that the company will most likely raise its dividend in the foreseeable future (usually Procter & Gamble raises the payout in April). Last year Procter & Gamble increased the payout by 3.9%, which is roughly twice as much as the rate of inflation.

Through a combination of earnings-per-share growth, partially offset by multiple compression towards the historic norm of a price to earnings ratio of 19, and through its dividend Procter & Gamble should be able to produce total returns of roughly 6%-7% annually going forward from the current level.

Final Thoughts

Procter & Gamble is a consumer goods giant that has a successful track record. The company is not a high-growth company, but could still produce solid total returns. We think that buying shares below our fair value estimate of $84 is attractive, whereas shares look more like a hold in the low-$90. The above-average valuation will be a headwind for Procter & Gamble’s total returns over the coming years, but returns should still be solid, and Procter & Gamble is a low-risk investment that provides stability to a portfolio during times when the market is shaky.

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