Procter & Gamble (PG)

Fellow Investors,

PG is not in my ‘top 10’ watch list for Dividend Kings simply because its revenue and dividend growth rates have been slowing while other Dividend Kings have not. However, most of the stocks in my ‘top 10’ watchlist are also far above my target buy price. PG is currently substantially below my target buy price. Thus, I am taking another look at PG.

To determine a target buy price for stocks to add to my long-term holdings portfolio I compute annual high/low dividend yields for the past 10 years and then average the annual high yields. Taking the current annual dividend and dividing it by the 10-year average high yield gives me a target buy price.

Let’s look at how this plays out with PG. PG has a 10-year average high yield of 3.5%. With the recently announced increase in the dividend in 2018 PG will pay out a total of $2.84 per share. Thus, my target buy price for PG would be $81.14.  PG closed on Friday at $73.80, a 9% discount to my target buy price.

PG’s highest dividend yield in the past 10 years was 4.05% which occurred in 2015. PG’s dividend yield for 2018 is now 3.84%, thus, higher than the 10-year average but not quite as high as available at its lows in 2015. That’s what makes PG an interesting potential buy at current prices. You get a blue-chip stock with a 62 year history of annual dividend increases at a dividend yield that exceeds its 10-year average high yield. In my mind the low price/high yield makes up for the slower growth rate relative to some of its other Dividend King peers.  Its dividend growth rate, while slowing over the past 3 years, still exceeds the rate of inflation.

Given the downward trend in price I will likely hold off for a while longer but anything below $70/share will be very hard to resist.  At $70/share the dividend yield would exceed 4%.

Best Regards,

Troy