Dividend Aristocrat Overview: The Procter & Gamble Company (NYSE:PG) (2024)

Procter & Gamble (NYSE:PG) is a manufacturer of consumer products used around the world. The company owns 23 brands that each generate over $1 billion in sales annually, and another 14 brands that each generate $500 million in sales annually. The company is truly massive; it is #31 on the 2014 Fortune 500 list and employs 118,000 people worldwide.

Procter & Gamble's history goes back over 175 years, to a partnership between William Procter and James Gamble in 1837. William Procter had emigrated from England in the early 1830s, after his London business venture suffered from a fire and a robbery in quick succession. He and his wife Martha made it to Cincinnati, where Martha died from a cholera epidemic then hitting the city. While he had likely planned to continue moving west, he decided that he would settle in Cincinnati after losing his wife. He established himself as a candle maker, taking advantage of the many meat plants in town and the plentiful supply of raw materials for candle making that he needed.

James Gamble emigrated from Ireland in 1819 with his family. His father, George Gamble, had decided to settle the family in Shawneetown, Illinois, but stopped in Cincinnati when James became ill. After he recovered, George settled the family in Cincinnati, and the next year James apprenticed himself to William Bell, a local soap and candle factory owner. In 1828, Gamble went into a soap and candle making business partnership with Hiriam Knowlton.

In 1832, James Gamble married Elizabeth Norris, a fact that would be uneventful to most people, except for the fact that nearly 6 months later William Procter married Elizabeth's sister, Olivia. With Procter in the candle making business and Gamble in the soap and candle making business, they were in competition for the same raw materials and the same customers. Their mutual father-in-law suggested that they go into business together and on October 31, 1837, the two men formed Procter & Gamble Company with nearly $7200 in assets.

With access to raw materials from Cincinnati's meat plants and the Ohio River waterway to ship goods, the company expanded rapidly. Their first print advertising, in Cincinnati's Daily Gazette offered "… Palm Soap… Toilet and Shaving Soap, [and] Pure Tallow Candles". Procter & Gamble opened their first dedicated factory at 830 Western Row in 1840. In 1848, the company registered total sales of $37,000; 11 years later, sales exceeded $1 million.

Immediately after breaking the $1 million sales level, and with the risk of civil war a possibility, Procter & Gamble made sure to secure a supply of rosin for soap making from New Orleans-based companies. Having done so prior to the outbreak of The Civil War, Procter & Gamble was one of the few soap makers able to supply the Union Army. This built brand loyalty among Union forces that continued after the war.

Procter & Gamble's introduced Ivory Soap, their first branded product in 1879. The company's next major turning point came in 1890, when the 53-year-old partnership was incorporated. The following year, Procter & Gamble stock was listed on the NYSE. The funding that came with the incorporation allowed for expansion, both geographically and in development of new products, both organically and through expansion. Ivory Soap was first introduced to England in 1900; in 1915, Procter & Gamble opened their first factory outside the U.S., in Hamilton, Canada, to produce Ivory Soap and Crisco; the company expanded into Asia in 1935, into Latin America in 1940, into the Middle East in 1959, and into Japan in 1973. The company has continued to expand and currently provides products to consumers in over 180 countries.

Procter & Gamble had net sales of $83.06 billion in its 2014 fiscal year, which ended on June 30, 2014. This was an increase of less than 1% from the prior year. Net earnings were $11.6 billion in FY 2014, up 2.9% from the FY 2013 net earnings of $11.3 billion.

Geographically, FY 2014 sales came primarily from North America (39% of total sales), with remaining sales almost equally distributed between Western Europe (18%), Asia (18%), Central and Eastern Europe, the Middle East and Africa (15%), and Latin America (15%).

The company's businesses are divided into five Global Business Units: Beauty, Grooming, Health Care, Fabric and Home Care, and Baby Feminine and Family Care:

• The Beauty Sector contributed 24% of net sales and 23% of net earnings in FY 2014. Brands included in this sector include Head & Shoulders, Olay, Pantene, SK-II and Wella. Sales decreased by about 2% from FY 2013 to FY 2014.
• The Grooming Sector contributed 10% of net sales and 17% of net earnings in FY 2014, and saw flat sales from FYs 2013 to 2014. Brands in this sector include Fusion, Gillette, Mach3 and Prestobarba.
• The Health Care Sector contributed 9% of both FY 2014 net sales and earnings. Brands in this sector include Crest, Oral-B and Vicks.
• The Fabric Care and Home Care Sector saw sales growth of 1% from FYs 2013 to 2014. This sector, which includes the Tide, Gain, Dawn, Febreeze, Swiffer and Downy brands, contributed 32% of net sales and 26% of net earnings in FY 2014. (Note: This sector also included the Duracell brand of batteries, which was recently sold to Berkshire Hathaway. This should reduce total sales and earnings in FY 2015.)
• The Baby, Feminine and Family Care Sector contributed 25% of FY 2014 net sales and earnings. Brands in this sector include Always, Bounty, Charmin and Pampers. Sector sales growth was 2% from FYs 2013 to 2014.

The company is a member of the S&P 500 index and trades under the ticker symbol PG.

Procter & Gamble's Dividend Growth and Stock Split History

Procter & Gamble has increased dividends since 1957 and paid dividends to investors since 1890.

Procter & Gamble has one of the longest dividend records of all U.S. companies, having paid dividends since 1890, and one of the longest records of dividend growth among all the Dividend Aristocrats. The company first began increasing dividends in 1957 and met the Dividend Aristocrat criteria of 25 consecutive years of increasing regular dividend payments in 1981. For the last decade, Procter & Gamble has announced dividend increases in April, with the higher dividend payment beginning in May. In May 2014, Procter & Gamble announced its most recent increase, raising the quarterly dividend by 7.0% from 60.15 cents to 64.36 cents per share. I expect the company to announce its next dividend increase in April 2015.

Procter & Gamble has a fairly consistent record of dividend growth. Over the past 20 years, the company has increased dividends in the high single digits to low double-digit percentages. The company's 5 year compounded annual dividend growth rate (CADGR) is 8.0%, which is slightly less than the 10-year and 20-year CADGRs of 9.99% and 10.73%, respectively.

Procter & Gamble has split its stock 11 times since 1920. Prior to the Great Depression, Procter & Gamble split the stock 5-for-1 twice: in January 1920 and in August 1929. It would be another 21 years to the next stock split, this time 3-for-2 in March 1950. Since then, the remaining 8 stock splits have been 2-for-1. These occurred in June 1956, April 1961, April 1970, January 1983, October 1989, June 1992, September 1997, and most recently June 2004.

Your investment in Procter & Gamble from mid-2009 to mid-2014 would have grown from about $43.94 to about $79.90 -- a compounded rate of 12.7% over that time, not including the effects of reinvested dividends. This trailed the 14.3% return of the S&P 500 over that same period.

Procter & Gamble's Direct Purchase and Dividend Reinvestment Plans

Procter & Gamble has both direct purchase and dividend reinvestment plans. Investors interested in participating in either of these plans can find information at the ComputerShare Investment Plan site. The dividend reinvestment plan allows you to reinvest dividends in full or in part; you can also choose to have the dividends directly deposited into your checking account.

Procter & Gamble pays for some of the fees associated with the plans. The company covers the setup fee for new investors, along with the fee for reinvesting dividends. If you're interested in directly purchasing Procter & Gamble stock, the minimum purchase is $250 for the initial investment. Additional direct purchases have a minimum of $50.

When you purchase shares, you will be assessed a fee of $2.50 if paying by check. This fee is waived if your purchases are funded by automatic debit from your checking or savings account. Regardless of how you fund your purchase, you'll be assessed a 2 cent per share fee. As mentioned above, Procter & Gamble pays the fees when reinvesting dividends in the plan.

When you sell your shares in the plan, you'll pay 12 cents per share sold plus a transaction fee of between $15 and $40, depending on the type of sell order. These fees are reduced if you initiate your sell order online or through the automatic phone system.

Helpful Links

Procter & Gamble's Investor Relations Website

Current quote and financial summary for Procter & Gamble (finviz.com)

Information on the direct purchase and dividend reinvestment plans for PG

Harvesting Dividends