Dividend Investor Portfolio #15: Branded Incomes


Dear Investor,

Welcome to the 15th edition of TipRanks’ Dividend Investor Portfolio & Newsletter.



Market-Moving News: July 1, 2024

The S&P 500 (SPX) declined last week, snapping a three-week winning run. The Dow Jones Industrial Average (DJIA) and the Nasdaq-100 (NDX) also logged small weekly losses, while the Nasdaq Composite (NDAQ) eked out a minute gain. Despite the turbulence, the benchmark indexes ended June with healthy increases, with the SPX and the Nasdaq remaining near their all-time highs. Stock indexes also wrapped up a banner first half of the year, with a rise of 14.5% for the S&P 500, over 18% for the Nasdaq Composite, and almost 4% for DJIA.

Meanwhile, economic data continues to send mixed clues. The revised Q1 2024 GDP came in slightly stronger than was expected, though still reflecting a significant slowdown from Q4. Consumer spending increased less than expected in May, but personal income rose more than economists had estimated, propped by strong consumer sentiment that beat expectations in June.

Coupled with a deceleration in inflation, this data paints a picture of an economy headed for a “soft landing”, increasing the odds of an interest-rate cut coming in September. However, the picture is missing a key component that will be released this Friday: the all-important job market report, which also includes wage growth data. Although consumers are feeling pressure from inflation and high interest rates, they will keep spending as long as their income is increasing. Therefore, some evidence of labor-market softening is needed to support September’s rate-cut expectations.



This Week’s Quality Dividend Stock Idea

The Procter & Gamble Company (PG) provides branded consumer packaged goods worldwide. It operates through five segments: Beauty; Grooming; Health Care; Fabric & Home Care; and Baby, Feminine & Family Care.


Well-Diversified Core Businesses

The company’s brands are well known around the globe and enjoy strong customer loyalty. These include Head & Shoulders, Herbal Essences, Pantene, Olay, Old Spice, Braun, Gillette, Crest, Oral-B, Ariel, Tide, Febreze, Pampers, Always, Pepto-Bismol, and many more.

PG’s revenue streams are highly diversified across these categories. The largest revenue contributor is the Fabric & Home Care segment, responsible for 35% of sales. It is followed by the Baby, Feminine & Family Care with 25% and the Beauty segment with 18%. The Health Care segment represents 14% of sales, while the Grooming segment is responsible for 8%.

Procter & Gamble markets its products in almost every country in the world, with the North American region responsible for 50% of sales. Europe represents 21%, China, Asia, and the Pacific contains 17% of sales, Latin America has 7%, while India, the Middle East, and Africa account for 5% of total sales.


The Making of a Consumer Staples Giant

The company was established in 1837 by William Procter and James Gamble as a soap and candle manufacturer. It began its corporate journey in Cincinnati, Ohio, where the company’s headquarters remain to this day.

During the American Civil War, PG supplied soap to the Union Army, which made its products known and popular all over the country. From that time on, Procter & Gamble registered strong growth, which was supported by fast diversification of its product line, and later by acquisitions. By the 1930s, PG was a major international corporation with a diversified line of soaps, toiletries, and food products.

Over time, it introduced new products and acquired well-known brand names, branching out into new areas, including toothpaste, toilet paper, fabric softener, razors, disposable diapers, and more. One of the most important of PG’s acquisitions was the buyout of Gilette in 2005, which formed the largest consumer goods company in the world, replacing its main competitor Unilever.

On the other hand, over the years, the company also disposed of businesses which it no longer saw as core. Thus, PG exited its prescription drug business in 2009, its snack food business in 2012, and its pet food business in 2014. In the same year, the company embarked on a restructuring program, aimed at streamlining its businesses around 65 of its most profitable brands while dropping about 100 brands which combined together added just 5% towards net profits. The program was completed by 2019, and in 2023 PG began a new program of logistics and products optimization aimed at cost cutting.


A Portfolio of Market-Leading Brands

Today, Procter & Gamble remains the world’s largest consumer products company, boasting a market capitalization of $390 billion and annual revenues of over $82 billion, which grants it the #50 spot on the Fortune 500 list.

PG is an undisputed market leader, holding numerous brands in top market positions either in North America or globally. Thus, the Pampers brand alone is worth over $20 billion, remaining the most popular diaper brand for decades; over 25 million babies around the world wear Pampers every day.

In addition, more than 20 brands generate annual revenues north of $1 billion, including Tide, Charmin, Pantene, and others. The Charmin brand holds 25% of the toilet paper market share in North America, while Bounty has 40% of the paper towel market in the region. In the Beauty segment, PG holds nearly 20% of the global market share in the retail hair care market, thanks to its Head & Shoulders and Pantene brands. In addition, Procter & Gamble is rated #4 in Global Beauty; its facial care brand Oil of Olay alone holds 5% of the vast global skincare market.

PG’s best-selling Crest and Oral-B brands are behind the company’s 20% global market share of oral care products. In addition, the company’s Gilette and Braun brands are the primary forces that drove its global dominance in the sphere. These translate into 25% of the global male electric shavers market, and more than 50% of the global female epilators market.


Consistently Outperforming the Competitors

The company’s ability to maintain and grow its market share in the very competitive consumer products space is helped by its vast size and financial strength, allowing it to quickly grab business opportunities that come along. In addition, in this industry advertising is key, and the company’s marketing budget is one of the largest in the world, surpassing the market caps of many of its smaller competitors.

Another competitive edge stemming from Procter & Gamble’s enormous size and the high popularity of its brands is the leverage it provides in dealings with retail partners like Walmart and Kroger, as well as other global partners.

As a result of these and other competitive advantages, coupled with its winning business model, PG was able to increase its top- and bottom lines, as well as deliver strong cash return to shareowners, throughout the global pandemic – despite the lockdowns and the major disruption in global supply chains.

This outstanding resilience continued post-pandemic, despite rapidly escalating input costs, the highest consumer inflation in 40 years, and fundamental shifts in consumer behavior. Specifically, in the face of inflation, PG has been able to perform sizable price increases without impacting demand for its products. For example, in fiscal 2023 (ended in June last year), the company’s organic sales increased by ~7%, which is considered a very fast growth in the consumer staples space.

Over the past two decades, the company has displayed stable growth in revenue and earnings throughout different stages of the economic cycles. During the last five years, Procter & Gamble has added over $15 billion in sales, expanded its market share in 31 out of 50 categories/geographies, grown earnings-per-share by 40%, and returned over $80 billion of value through dividends and share repurchase to shareowners. Over this period, the company’s revenues have grown at a CAGR of ~5%, and its EPS at a CAGR of ~8%.

PG’s outstanding delivery continued in fiscal 2024. Thus, in its FQ3 2024, the company’s EPS by far surpassed analysts’ estimates, as it did in all quarters since 2020 with a single exception in FQ4 2022, when it slightly missed projections. In FQ3, PG’s earnings-per-share surged by 11% year-on-year, driven by an increase in net sales and an increase in core operating margin. As a result, the company raised its fiscal 2024 core net EPS growth from a range of 8-9% to 10-11% versus fiscal 2023 EPS.


Dividend King’s Crown Supported by Strong Finances

Having increased its dividends annually for the last 68 years, Procter & Gamble is a Dividend King – a status reserved for firms that have raised their payouts for 50 years or more. PG’s current dividend yield of 2.32% is higher than the Consumer Staples sector’s average of 2.12%.

With the dividends-per-share growing at a CAGR of 6% in the past five years, the company is expected to continue raising its payouts at similar rates over the next several years. The company last hiked its payout in April, raising the annual dividend by 7%.

PG’s moderate payout ratio of ~58% (both earnings- and cashflow-based) means that the company has sufficient capability to pay and increase dividends without undermining its ability to invest in business growth, seek M&A opportunities, or perform buybacks.

Procter & Gamble’s ability to continue paying and raising dividends for years to come is supported by its long track record, its leading and expanding market position, and its financial strength. The company has a moderate net debt, well-covered by operating cash flows, with interest covered by EBIT many times over. Its debt ratings are near the top of the scale: “Aa3” at Moody’s and “AA-” at Standard & Poor’s.

Notably, PG’s capital efficiency and profitability metrics are some of the best in the generally low-growth, low-margin consumer staples sphere. The company’s ROE of 32% is in the top 5% of its industry, while its ROA and ROIC are in the top 15%. Moreover, Procter & Gamble surpasses about 95% of its peers in the industry in terms of operating, FCF, and net profit margins.


Total Return in Focus

PG stock has gained 8.7% in the past year, about 2.5x the performance of Consumer Staples Select Sector SPDR Fund (XLP). While consumer-facing stocks have been under pressure for the better part of that period, a consistent decrease in inflation rates and the projected Fed’s easing this year are expected to benefit the consumer, supporting the sector’s share performance. In addition, the markets have been seemingly staging a rotation from high-flying technology stocks to lower-growth, higher-stability sectors, adding to optimism regarding the future performance of Consumer Staples stocks.

Featuring a P/E ratio of 27x, Procter & Gamble’s stock is not exactly cheap. However, investors have historically been prepared to pay a premium for stocks like PG, considering the company’s vast size and market share, earnings stability, quality finances,  and reliable dividends. PG is currently trading at about a 22% discount to its long-term historical valuation average. Compared to the relevant peer group, Procter & Gamble’s stock comes in the middle of the valuation range. Moreover, based on projected cash flows, the stock seems to be about 20% undervalued.

In addition to the stock price appreciation, PG’s shareholders are compensated through aggressive share repurchases. After spending a staggering $7.5 billion on buybacks in fiscal 2023, the company expects to repurchase its shares for the amount of $5-6 billion in this fiscal year. In the past decade through the end of FQ3 2024, Procter & Gamble has reduced its share count by ~14%.


Investing Takeaway

We view Procter & Gamble as a consumer staples juggernaut, leading its industry in terms of profitability and capital efficiency, with its ample financial resources supporting shareholder compensation. The company’s stable rate of dividend growth is expected to continue in the years to come, which makes it an attractive addition to long-term income portfolios.


Dividend Investor Portfolio


Portfolio News

¤ Kroger (KR): the company’s Board of Directors approved a dividend increase from $1.16 to $1.28 per year. The next quarterly dividend of 32 cents per share will be paid on September 1st, 2024, to shareholders of record as of the close of business on August 15th, 2024. Kroger’s quarterly dividend has grown at a CAGR of 13.5% since 2006.

¤ JP Morgan (JPM): following the successful passage of the Federal Reserve’s annual Stress Tests, JPM’s Board of Directors approved a new share buyback program of $30 billion, effective today. The bank also plans to increase the Q3 dividend from $1.15 to $1.25 a share.


Recent Trades

None at the moment, although we are considering adding a stock to our portfolio when the market conditions allow for an attractive entry point. Stay tuned.


Portfolio Attributes

Dividend Portfolio Yield
Dividend Growth Rate Annual Dividend Income
3.74% 9.24% $3,762.20
Yield-on-Cost Adjusted
 Weighted Growth Equal-Weight 100K Portfolio


Current Portfolio

Name EX-Dividend Date Payment Date Dividend Yield  Annual DPS 
Automatic Data Processing (ADP) Jun 14, 2024 Jul 01, 2024 2.18% $5.60
Allianz SE ADR (ALIZY) May 08, 2025 May 13, 2025 5.25% $1.50
Amgen (AMGN) Aug 16, 2024 Sep 06, 2024 3.23% $9.00
BlackRock (BLK) Sep 06, 2024 Sep 23, 2024 2.55% $20.40
Edison International (EIX) Jul 01, 2024 Jul 28, 2024 4.29% $3.12
JPMorgan Chase (JPM) Jul 05, 2024 Jul 31, 2024 2.20% $4.60
Kroger (KR) Aug 16, 2024 Sep 03, 2024 2.32% $1.28
LyondellBasell (LYB) Aug 30, 2024 Sep 05, 2024 5.07% $5.36
Philip Morris (PM) Jun 21, 2024 Jul 08, 2024 5.82% $5.20
Qualcomm (QCOM) Aug 29, 2024 Sep 20, 2024 2.03% $3.40



Click here for more stock market analysis from TipRanks Macro & Markets research analyst Yulia Vaiman



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