What P&G actually does
Procter & Gamble makes the everyday products found in most homes. It was founded in 1837 in Cincinnati by William Procter and James Gamble, and today its brands include Tide, Pampers, Gillette, Oral-B, Head & Shoulders, Febreze, Always, Charmin and Bounty.
The business is organised into several categories, such as beauty, grooming, health care, fabric and home care, and baby, feminine and family care.
How the business makes money
P&G sells products people buy again and again, in almost any economy: laundry detergent, diapers, razors, toothbrushes. Strong brands let it charge more than store-brand alternatives, and heavy spending on research and advertising keeps those brands ahead.
The company sells through retailers around the world, so its results also depend on exchange rates and on the bargaining power of large chains.
The dividend story
P&G has raised its dividend for more than six decades, one of the longest records among large US companies. It pays quarterly and it also returns a lot of cash through share buybacks. The yield is moderate and the raises are regular.
Because the business is so steady, the streak has survived recessions and market crashes, but the company still has to keep growing profit to keep raising the payout.
What to keep an eye on
- Private labels. Store brands compete hard when consumers are squeezed.
- Input costs. Oil-based materials, packaging and transport affect margins.
- Currencies. A strong dollar reduces reported sales abroad.
- Slow growth. It is a mature business, so growth comes from price and product upgrades more than from volume.
Quick take
P&G is a textbook defensive dividend stock: dependable demand, strong brands and a very long record of increases. It rarely thrills, which is exactly the appeal for many income investors.