04-07-2014, 08:01 AM
So as mentioned in the dividend announcement thread, PG announced this morning that they are raising the dividend by 7 percent from .6015 per share to .6436 per share.
I updated my spreadsheet on PG on the news to see what I think this means from a dividend growth perspective. Overall, I think the news is neutral for the moment, and that we’ll need to see Q1 and Q2 2014 earnings to really decide what to think of this raise.
On the one hand, 7 percent dividend growth for such a mature company is nothing to sneeze at, and should keep your dividends ahead of inflation. On the other, PG has not been growing earnings by 7 percent a year on average over the past five years, and so if this dividend raise comes at the expense of the payout ratio, it could be worrisome.
PG’s earnings have gone essentially nowhere in the past five years. In 2008 they earned $4.35 for the year, and in each year since have earned between $3.40 and $3.90. Nonetheless, they’ve been increasing the dividend each year, with each raise falling in the 7 to 9 percent range, generally. As a result, the payout ratio has been increasing, and in 2013 stood at a five-year high of 63 percent. This is not an alarming number for a mature dividend growth company, but if earnings do not increase, and PG stays committed to its 58-year streak of increases, the ratio could climb into dangerous territory.
Fortunately, estimates for 2014 do foresee solid earnings growth. Analysts on average seem to expect full-year 2014 earnings to be about $4.20. This would represent about 12 percent earnings growth compared to 2013, and while still not as high as 2008, would certainly be heading back in the right direction again. This would also bring the payout ratio back down a bit, providing some comfort with respect to the dividend.
If these earning do not materialize, and the payout ratio keeps increasing, it could be sign of trouble to come. But PG has an incredible track record, and I trust that management will make the right moves. With a P/E in the 19 to 20 range, I’m not scrambling to buy more shares of PG right now, but am happily holding the shares I already have.
I updated my spreadsheet on PG on the news to see what I think this means from a dividend growth perspective. Overall, I think the news is neutral for the moment, and that we’ll need to see Q1 and Q2 2014 earnings to really decide what to think of this raise.
On the one hand, 7 percent dividend growth for such a mature company is nothing to sneeze at, and should keep your dividends ahead of inflation. On the other, PG has not been growing earnings by 7 percent a year on average over the past five years, and so if this dividend raise comes at the expense of the payout ratio, it could be worrisome.
PG’s earnings have gone essentially nowhere in the past five years. In 2008 they earned $4.35 for the year, and in each year since have earned between $3.40 and $3.90. Nonetheless, they’ve been increasing the dividend each year, with each raise falling in the 7 to 9 percent range, generally. As a result, the payout ratio has been increasing, and in 2013 stood at a five-year high of 63 percent. This is not an alarming number for a mature dividend growth company, but if earnings do not increase, and PG stays committed to its 58-year streak of increases, the ratio could climb into dangerous territory.
Fortunately, estimates for 2014 do foresee solid earnings growth. Analysts on average seem to expect full-year 2014 earnings to be about $4.20. This would represent about 12 percent earnings growth compared to 2013, and while still not as high as 2008, would certainly be heading back in the right direction again. This would also bring the payout ratio back down a bit, providing some comfort with respect to the dividend.
If these earning do not materialize, and the payout ratio keeps increasing, it could be sign of trouble to come. But PG has an incredible track record, and I trust that management will make the right moves. With a P/E in the 19 to 20 range, I’m not scrambling to buy more shares of PG right now, but am happily holding the shares I already have.
