When fear grips the stock market, as it has in recent weeks because of the coronavirus, income investors need to focus on quality dividend growth stocks. I believe that dividend aristocrats, a group of 64 stocks in the S&P 500, which have increased their dividends for at least twenty five consecutive years, are among the highest-quality dividend growth stocks. One of those stocks is Procter & Gamble (NYSE: PG) , a recession-resistant dividend aristocrat. That is why AlphaBetaStock.com is adding PG stock to its “stocks to watch” list.
PG stock shot up up 5.7% yesterday during the largest market rally ever. The stock market rally was caused by the positive news that a bailout bill was close to be being passed in Congress. However, the coronavirus threat is far from over.
Recessions and depression can be disastrous for many companies, particularly those operating in cyclical sectors of the economy. One of those would that does well in bad times is the consumer staples. This sector should perform better than most, even in a global recession, because consumers will always need essential products such as toilet paper, laundry detergent, and toothpaste.
These products are essential for most people. This will keep manufacturers of consumer staples profitable and allow them to continue paying dividends to shareholders. For this reason, dividend growth investors must continue to hold Procter & Gamble (PG), even in a recession.
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Proctor & Gamble Business Summary
Procter & Gamble is a giant in consumer products that sells its products in more than 180 countries and generates more than $70 billion in annual sales. Some of its brands are Gillette, Oral-B, Tide, Charmin, Crest, Pampers, Bounty, Febreze, Head & Shoulders and many more. PG has a market cap of $290 billion.
In other words, PG should continue to have decent revenue during downtime. For investors, this is good. For dividend or income investors, this is HUGE!
Proctor and Gamble underwent a massive transformation several years ago. It should be noted that PG was one of the companies that did not see a significant recovery in sales and earnings per share that came out of the Great Recession of 2008-2009. The company had swelled, with dozens of underperforming brands across multiple categories.
In response, Procter & Gamble embarked on an aggressive divestment program, designed to get rid of slow-growing brands that were not considered part of the company’s future growth. For example, in 2016, it sold the Duracell battery brand to Berkshire Hathaway (BRK.B) for $4.7 billion and also let go of 43 beauty brands to Coty (COTY) for $12.5 billion. Overall, P&G reduced its total brand count by almost two-thirds.
The result of these actions is that Procter & Gamble is now a much faster-growing company with higher profit margins. In the last quarter, PG’s organic sales grew a solid 5%, led by 8% growth in the beauty segment and a 7% increase in the healthcare division. Organic volumes increased by 3% because of new pricing.
PG is projecting a sales growth of 4%-5% and earnings per share (EPS) growth of 8%-11% for the current fiscal year. It also intends to return about $15 billion to shareholders this year that will be divided equally between dividends and share buybacks. Procter & Gamble cash returns are a great reason to own the PG stock.
What this means is that investors of PG stock are buying a company that underwent a recent “remodel” and has both good leadership and a good business model. Dividends should continue to be paid to investors.
PG Stock Consistent Dividend Growth – Even in a Recession
Surprisingly, the PG has paid increasing dividends for 63 consecutive years, one of the longest active streaks of any company. This qualifies the company to be not only a member of the Dividend Aristocrats but also a member of the Dividend Kings. With an expected dividend payout ratio of 61% of adjusted earnings per share in the current fiscal year, the dividend is sufficiently hedged.
We expect the Procter & Gamble dividend to remain safe, even in a deep and prolonged recession. The company has reliable interest coverage, and Procter & Gamble has strong interest coverage. The company is very resistant to downturns, as its products are essential for consumers, even in an economic recession. In the Great Recession, Procter & Gamble saw its earnings per share drop just 1.6% in 2009 and 1.4% in 2010. When the next recession appears, this PG stock is likely to outperform the market once again.
Procter & Gamble has significant competitive advantages, specifically its major brands like Tide, Bounty, Pampers, etc.
Bottomline – Should You Buy PG Stock
PG stock is not the least expensive stock, but it has a nice 2.5% dividend that beats the S&P 500. The dividend has been paid for over 60 years. If you are looking for a consistent dividend stock, PG stock should be on your list of stocks to buy.
Stock Market Morning Report
S&P futures are declined, down 22 to 23 points, as…
- The White House and Senate struck a deal on a $2 trillion stimulus package to support the domestic economy, with a vote scheduled for later today.
- House Democrats were said to balk at the idea of passing the Senate’s stimulus legislation without debate, potentially slowing approval.
- The Trump administration was reportedly considering rolling back tariffs on imports for 90 days in an attempt to help American consumers.
European markets fell as…
- The European Union’s Securities and Market Authority told banks they have flexibility on loan losses caused by the coronavirus, allowing for a moratorium on payments.
- Eurozone finance ministers were said to support a measure allowing countries to apply for a credit line from the European Stability Mechanism worth 2% of annual gross domestic product.
- Italy’s new coronavirus cases rose for the first time in three days on Tuesday but were still below the peak made Saturday.
- France launched a $4.5 billion support package, which included short-term refinancing for start-ups and tax credits.
Asian markets rallied as…
- Investor optimism rose after the Dow Jones Industrial Average experienced its largest one-day rally since 1933 in hopes of a US stimulus accord.
- Japan’s Economy Minister said he wants to adopt a bold and unprecedented stimulus package to shield the economy from coronavirus damage.
- India enforced a 21-day lockdown that began at midnight yesterday, as the Prime Minister warned the country needs to come to grips with the coronavirus outbreak.
- Australia banned overseas travel and increased social restrictions in an attempt to contain the virus spread.
And ahead of…
- Preliminary Core Capital Goods Orders Growth for February (8:30 a.m.)
- Durable Orders, Shipments for February (8:30 a.m.)
- FHFA Home Price Index for January (9 a.m.)
- Energy Information Administration Crude Oil Inventory Data (10:30 a.m.)
Asia – Japan’s Nikkei +8.04%, Japan’s TOPIX +6.86%, China’s Shanghai Composite +2.17%, Hong Kong Hang Seng Index +3.81%, South Korea’s KOSPI +5.89%, Taiwan’s TSE +3.87%
Europe – EuroStoxx 50 -0.71%, UK FTSE -0.34%, German DAX -1.54%, French CAC -0.09% , Italian MIB -1.17%, Spanish IBEX -0.79%
Currencies – Dollar -0.56%, Japanese Yen -0.01%, Euro +0.23%, British Pound +1.01%, Swiss Franc -0.03% , Chinese Yuan -0.60%
WTI Crude -2.62%
Brent Crude -3.93%
Nat Gas +0.36%
US Treasury 10 yr yield -1.8bps at 0.829%
US Treasury 2 yr yield +0.4bps at 0.359%
German 10 yr yield +0.5bps at 0.326%
French 10 yr yield +0.5bps at 0.177%
Italian 10 yr yield +1.7bps at 1.573%
Japanese 10 yr yield +0.8bps at -0.068%