Consumer staple giant Procter & Gamble Company (PG) has outperformed the market over the last year. Shares are higher by nearly 13% over this period of time, compared to the less than 8% return for the S&P 500.

The company also continues to reward long-term shareholders with dividend increases each year like clockwork. P&G has increased its dividend each year for over 60 consecutive years, placing it on the exclusive list of Dividend Kings. Its premier brand portfolio and long history of dividend growth also make it an attractive pick for institutional investors. For example, P&G is a top 10 holding for Alkeon Capital Management.

This article will discuss how P&G has navigated the current economic conditions while continuing to generate positive returns for shareholders.

Quarterly Results

Procter & Gamble reported results for the fourth quarter and fiscal year 2020 on 7/30/2020. Revenue increased 3.5% to $17.7 billion, $730 million above what the analyst community had expected. Adjusted earnings-per-share increased $0.16, or 16%, to $1.16, $0.15 ahead of estimates. For FY 2020, revenue improved 5% to $71 billion. Adjusted earnings-per-share increased 13.3% to $5.12.

Organic growth was 6% for the year, the largest year-over-year growth increase since 2006. Procter & Gamble had expected organic growth of 3% to 4% at the start of the year. Growth was wide-ranging as nine out of 10 global product categories had organic sales growth for the full year.

Fabric & Home sales were the highlight for the quarter. Organic sales were up 14% due to an 8% increase in volumes, 4% improvement in mix, and 2% higher pricing. Laundry and fabric enhancers in both North America and China contributed a significant amount to results. Europe was down slightly due to customer de-stocking related to COVID-19.

Beauty grew 3%, primarily due to volume gains. Hair Care was strong in North America while Personal Care experienced double-digit increases in Great China. Organic sales for Grooming were down 1% while volumes fell 4% in Q4 related to a reduced number of shaving incidents related to the COVID-19 pandemic.

Health Care sales were higher by 2% as pricing and mix offset a 1% drop in volumes. Higher demand for premium toothpaste was offset by weaker markets for power toothbrushes. This was attributed to the closing of dental offices. China demand was up double-digits aftermarket shutdowns were lifted.

Baby, Feminine, and Family sales were up 5%, mostly due to a 3% improvement in realized prices. Baby Care was weak overall but made gains in North America and China during the quarter. Europe and Latin America suffered double-digit declines as customers had stocked up on products in the previous quarter. Feminine and Family sales were robust, with double-digit growth across products lines.

Procter & Gamble expects organic sales growth of 2% to 4% for FY 2021 with currency exchange expected to be a 1% headwind to results. The company has also guided to 6% to 10% adjusted earnings-per-share growth for the year. This would equate to an adjusted earnings-per-share range of $5.43 to $5.63 using FY 2020 numbers.

Projected Returns

Sure Dividend expects Procter & Gamble to deliver 5% annual earnings growth over the next half-decade due to the company’s leadership position in its sector.

The stock currently trades at $131. Using the midpoint of the company’s guidance for the adjusted earnings-per-share, Procter & Gamble has a forward price-to-earnings ratio of 23.7. We feel that the stock deserves a slight premium to its historical average multiple of 18.8 times earnings. Therefore, we have assigned Procter & Gamble a five-year target price-to-earnings ratio of 20. Reverting to our target multiple would reduce annual returns by 3.3% over this period of time.

Procter & Gamble also pays a 2.4% dividend yield. The company has raised its dividend for 64 consecutive years, which is one of the longest dividend growth streak sin the market place.

In total, Procter & Gamble’s annual returns would consist of the following:

• 5% earnings growth
• 3.3% multiple reversion
• 2.4% dividend yield

We project that Procter & Gamble can offer investors a total annual return of 4.1% over the next five years.

Final Thoughts

Overall, Procter & Gamble benefited from the COVID-19 pandemic. The pandemic was a headwind in certain businesses, but the company’s organic sales were nearly double what Procter & Gamble had guided towards and the highest in more than a decade.

Procter & Gamble’s dividend growth track record is nearly unmatched and the current yield is superior to that of the S&P 500, making the stock an attractive option for income. The stock is not significantly undervalued right now, which means we do not have a buy rating on the shares at the current price, but long-term investors will continue to receive steady dividends and annual dividend increases for many years.