This is the third of my 4 weekly stock purchases in February via Sharebuilder’s automatic purchase plan. This week I added to an existing position and started a small position in a second company.
Proctor & Gamble
Proctor & Gamble (PG) produces high quality personal care products with strong brand values. If you’ve heard of Olay, Braun, Gillette, Crest, Oral-B, Vicks, Downy, Duracell, Febreze, Tide, Bounty, Charmin or Pampers, then you’ve heard of Proctor & Gamble. It’s a Fortune 500 company with a market cap of $231B. It is organized into five segments – Beauty & Personal Care (23% FY14 earnings), Grooming (17%), Health Care (9%), Fabric &Home Care (26%) and Baby, Feminine & Family Care (25%)
PG has increased its dividend each year for the last 58 years and it’s increased them like clockwork every April at least as far back as 2004. The dividend is currently $0.6436 giving a yield of 3%. Its current Payout Ratio is 80% based on an EPS of $3.22, higher than last year’s 61% and above 2012’s high of 68%. The higher payout ratio results from a lower EPS due to discontinued operations of the Duracell brand which is in the process of being transferred to Berkshire Hathaway. The dividend growth over the last 5 years is an annualized 8.1%.
PG has a higher valuation than the S&P with 25 vs. 17.9 (this value uses the lower EPS from the discontinued battery operations). That said, its valuation has been higher than the S&P average every year since 2004 except for 2009. Its projected EPS growth over the next 5 years is 6.7%.
Free Cash flow has been positive each year since 2004, with a low of $6.5B in FY2005 and a high of $13B in FY2010. FY2014 results were $10B and TTM results are currently higher at $11.85B.
PG currently pays 3.6% of my total projected dividends, within the 5% limit that I’ve set.
PG filed their Q2 results in January and the disappointing results were affected by the strong US dollar along with reduced income due to restructuring costs. Net sales decreased 4% overall, although underlying sales increased 2% in 4 out of the 5 reporting segments (Beauty decreasing by 1%) and core EPS increased 6% when adjusted for currency.
PG is currently reducing their brand portfolio from 200 or so down to 70; selling Duracell to Berkshire Hathaway for $3B as well as selling its Camay and Zest brands to Unilever. In the long-term this should give good results as the focus is on profitable brands, but in the shorter term there will likely continue to be restructuring costs. The core brands it will keep contribute 90% of PG’s profit, so the non-core brands are a clear drag on performance.
WPP plc (WPPGY) remains the world’s largest advertising company at $29B after Omnicon (OMG) and Publicis (PUB) agreed to disagree on their proposed merger last year. The company was originally founded in 1971 as a manufacturer of wire shopping baskets and I’ve written about it previously in an earlier UK Dividend List post where they’re a 22-year dividend Contender – the WPPGY symbol here refers to their US listed ADR.
Here on the US exchanges, WPPGY has increased its dividend every year for the last 5 years and shows its UK heritage with a bi-annual dividend schedule where payments arrive in July and November each year. Because of this, projected yield is hard to determine – last year’s DPS of $2.90 gives a current yield of 2.6%. Payout Ratio has been in the 30-50% range over the last 10 years and is currently around 50% based on an EPS of $5.73. Annualized Dividend growth over the last 5 years is 20% and the 5-year average dividend yield is 1.9%, below the current level.
WPP’s P/E is higher than the S&P’s average of 17.9 at 19.5. Over the last ten years, the P/E tracks the S&P fairly closely although the stock has gained on the S&P this year compared to last year’s P/E of 17.8. Its projected EPS growth over the next 5 years is 9%.
Free Cash Flow has been positive for each of the last 10 years, with a low of £412M in FY2011 and a high of £1.1B in FY2010. The TTM Free Cash Flow for FY2014 is currently at £952M.
I don’t have an existing position in WPPGY, so this is a new entry for me.
WPP haven’t released their 4Q results yet – their FY14 annual results are due next month on March 9th. Last week, Kantar, WPP’s research division agreed to purchase 15% of comScore (SCOR) who measure and calculate metrics of online / mobile sites.
I chose PG to increase my allocation in the Consumer Defensive sector, following on from my KO, GIS and KMB purchases of late.
WPPGY is a bit of a wild card for me, I chose them mainly for diversification both as an international stock and also because Advertising is an industry within the Consumer Cyclical sector that I don’t have any exposure to. I currently hold HD, MCD, MAR and LB in this sector which are all are quite expensive yet I want to boost the sector’s dividend income too. With the US Elections and Summer Olympics in 2016, I’m quietly confident in their continued growth.
February Stock Purchase
So my purchase this week was
1.352 shares of WPPGY @ $110.95 ($150)
1.759 shares of PG @ $85.27 ($150)
With an average yield of 2.8%, this purchase adds $8.4 to my projected annual dividend income.
Quote of the day
Patience, persistence and perspiration make an unbeatable combination for success.