PG has always been seen as a “defensive” stable stock with safe dividends, but looking at their payout ratio both LFY and TTM, it’s between 160-200%. I wouldn’t call that a stable dividend stock, especially at only 2.5% yield. Anybody have any reasons to support it? Considering kicking it out of my portfolio
I have it in my portfolio as I believe long term the company is a safe bet with respect to economic downturns. However I do not believe it’s dividend is safe at the current level but a cut as this point in time does not worry me.
I spent my childhood in Cincinnati, where PG is headquartered. Many local people seem to have practically their entire pension in PG stock. If executives were to cut the dividend their mothers and neighbours would complain.
Personally, I have owned PG stock for at least 30 years. It is the largest single holding in my portfolio, followed by JNJ and then MSFT and AAPL. I have thought of reducing the position, but see no reason to. Cincinnati businesspeople are smart. People like working for PG. The consumer staples sector is good for income and stability. PG has done very well recently and may not grow as much next year. But I think this is a stock not to trade or become excited about, but to accumulate for your pension. I also have KO, PEP, MDLZ, CL, EL, GIS, HSY, MKC, CLX, KHC, SJM. Consumer staples are 24% of my portfolio, followed by 20% healthcare, 19% information technology.
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Morningstar says “Hold”. Bank of America says “Buy” and gives this summary
BULLS SAY
- While sales in China slumped 8% in the fiscal third quarter (following COVID-19-related lockdowns), management has qualitatively suggested it is realizing marked improvement in its SK-II premium beauty brand since the market reopened this spring.
- We view past efforts to clean up the core business and forgo unprofitable sales, such as its commodified Mexican bathroom tissue lineup, favorably.
- As evidence of its cost edge, P&G increased core earnings at 4 times the level of sales in emerging markets in fiscal 2014 but this expanded to 8 times sales during the past several years.
BEARS SAY
- Similar to its peers, P&G has contended with pronounced transportation and logistics costs as a result of truck driver shortages, which may again eat into potential profit gains.
- Foreign exchange volatility may hamper P&G’s profits from time to time, given it makes and sells fare in different geographic regions.
- P&G has been forthright that local peers (as opposed to global branded players) have become more formidable competitors in emerging markets, signifying that its critical P&G understands each market in which it plays and tailors its fare to win with local consumers.
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Tbh I just had a closer look at the income statement. It seems that there was a pretty sizeable (£9B) unusual expense in Q4 2019. This was bigger than that quarters Gross Profit. I don’t know what it was but clearly that’s what’s driving up the payout ratio. If you took that expense out then it would actually be a good payout ratio. Not as worried anymore but reduce the allocation a little and I’ll reevaluate in the future
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I was interested in Procter and Gamble (PG) and Johnson and Johnson (JNJ) but I am a bit concerned by their reliance on intangible assets including goodwill and brand (I guess JNJ may include patents). Removing these assets from their balance sheets leaves very precarious balance sheets with the liabilities being significantly higher than the remaining “real assets”.
What are everybody’s thoughts on this point regarding both companies?
Do you not consider balance sheets in your evaluations or is it normal for companies to have very large intagible assets?
Besides this, I think both are very solid companies with stable sales.
On a side note, I tend to stay away from pharmaceutical companies, but in this case JNJ is fairly diversified and has alot of household brands like Listerine, Neutrogena, etc.
It was a write down on Gillette iirc.
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JNJ together with Microsoft are the only companies that have triple A credit ratings, so if there’s a company you don’t have to worry about balance sheet wise it’s them.
Concerning the PG topic, it’s a defensive, steady and slow growing company with a strong dividend record. Not a company I would expect excessive returns from but a good addition to dividend portfolios.
As a relatively young investor myself it’s absolutely not my cup of tea.
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I have it in my portfolio as a “Buy and Hold” defensive share same as Unilever. The reasons for buying are the same as @Richard.W.
…except I didn’t spend my childhood in Cincinnati so will defer to his knowledge on their business acumen! 