Dividend Farming Scorecard: Proctor & Gamble (PG)

Growing dividends for 62 years.

I’ve been farming dividends for several years.  One of my dividend producers is Proctor & Gamble (PG).  I’ve held it for a while and know it’s time to review it to determine whether or not to continue farming it or replace it with a different cash crop.

The following table provides a snapshot of factors I’m scoring for PG as of April 17, 2019.  Laying out my analysis helps me benchmark a holding or opportunity against target metrics.  It also allows me to compare this firm to alternatives as part of my review process.  As a general rule, I pull the bulk of my financial data from Yahoo Finance.

FACTOR	METRICS	PROCTOR & GAMBLE
CCC List	Champion	Champion
Current Yield	4.0%	2.76%
Company Profile	Red Flags?	Treasury stock?
Industry Leadership	Top 10	#2
Market Cap	$10 B+	$264.8 B
P/E	< 20	25.7
P/B	< 2	4.99
Debt / Equity	< 1	1.3
Dividend History (Years)	25	62
12 Month Price Range	Lower Half	Near Top
Dividend Payout Ratio	< 75%	69.1%
Portfolio Weight	Slightly Over	Slightly Over

CCC List: The DRIPinvesting.org web site provides the list of Champions, Contenders, and Challengers where I normally start.   (PG) is a Dividend Champion with 62 straight years of dividend growth!  How do you top that?  It’s likely there are fewer than a dozen firms with a track record of equal or greater length.

Current Yield:  Proctor’s yield is 2.76% which is less than 75% of my target yield.  If I were considering PG as a purchase, I’d look closely at the strength of other metrics before making a buy decision.

Company Profile:  PG is well-regarded and widely known for providing name-brand goods in beauty, grooming, health, household products, and various family consumables segments.  PG brands include but are not limited to Gillette, Crest, Cascade, Swiffer, Pampers, Charmin, and a host of others.

Industry Leadership:  Consultancy UK lists PG as the #2 consumer goods company in the world and #1 in the US by revenue.  PG trails only Nestle (world) and is ahead of Pepsico (US) as of September 2018.

Market Capitalization:  At $264.8, PG’s market cap coupled with its diverse brand line-up offers tremendous stability.

Price to Earnings:  The trailing P/E of 25.7 is above my range indicating investors may be reaching a bit.

Price to Book:  The P/B is nearly 2.5x my target.  The good will, blue sky, or whatever you might call it is far and away the largest asset on the balance sheet by nearly 2:1.

Debt to Equity:  Debt to equity isn’t as bad as I feared, but at 1.3 is still above my target.

Dividend History:  Growing dividends for 62 years is remarkable.  This is an important factor for Dividend Farmers.  However, I’m not sure that span would recommend a buy decision given other data points.

Price Range:  The price is within less than $1 of its trailing 12-month (TTM) or 52-week high with a $36 dollar span – not a bargain.  However, that does explain to a degree the P/E and P/B metrics which aren’t favorable on their own.

Payout Ratio:  At 69.1% the payout ratio is in-range.  Given the 62-year string of consecutive increases, there’s no reason to think it won’t make it to 63 or more, which is good.

Portfolio Distribution:  PG is a strong, but not overweight holding in my basket.  Coupled with other consumer goods firms in the fold, however, PG would tilt the whole thing too far in the consumables direction if I add more now.

Analysis  

Of the companies reviewed the past several months (PG) didn’t score as well as I expected.  I believe the price may be rich due in part to the number of institutional investors required to have it in their portfolios e.g., index funds, ETFs, etc., all of which can drive excess demand producing an overbought issue. 

The price may not fall far enough to make it a buy at this time, but I already have it in my portfolio so purchasing isn’t a consideration.  There are some blemishes but no heart-stopping red flags.  The inherent stability of the offering means there’s little potential for a fire sale in the foreseeable future.  PG went ex-dividend yesterday with a May 15 payout date so I may as well hold it and enjoy another distribution and reinvestment continuing the compound growth vital to Dividend Farmers.    

The thoughts expressed here are those of the author, who is not a financial professional.  Opinions should not be considered investment advice.  They are presented for discussion and entertainment purposes only.  For specific investment advice or assistance, please contact a registered investment advisor, licensed broker, or other financial professional.

Dividend Farming Scorecard: AT&T (T)

I’ve been farming dividends for several years.  One of my favorite dividend producers is AT&T (T).  AT&T has taken a lot of heat lately for its debt load and its general lack of market growth.  Consequently, I thought I’d review it to see if it should remain on the farm.

The table provides a snapshot of factors I’m scoring for T as of April 12, 2019.  Laying out my analysis helps me benchmark a holding or opportunity against target metrics.  It also allows me to quickly compare this firm to alternatives as part of my screening process.

FACTOR	METRICS	AT & T
CCC List	Champion	Champion
Current Yield	4.0%	6.45%
Company Profile	Red Flags?	Debt Load.
Industry Leadership	Top 10	#2
Market Cap	$10 B+	$233.9 B
P/E	< 20	11.3
P/B	< 2	1.3
Debt / Equity	< 1	1.8
Dividend History (Years)	25	35
12 Month Price Range	Lower Half	Upper Half
Dividend Payout Ratio	< 75%	70.5%
Portfolio Weight	Slightly Over	Slightly Over

CCC List: The DRIPinvesting.org web site provides the list of Champions, Contenders, and Challengers where I normally start.   (T) is a Dividend Champion with 35 straight years of dividend growth which is a great place to jump off.

Current Yield:  T’s yield is 6.45% which is more than 50% above my desired target.  Having a few dividend payers like this can help raise the average yield on the portfolio a few tenths of a percent reducing my time to double the dividend income stream.  Even better if the financial metrics don’t make it look like a risky, high yield holding.

Company Profile:  T is mostly known for delivering landline and wireless communication services.  However, it also owns DirecTV and WarnerMedia allowing it to provide content and streaming services.

Industry Leadership:  Investopedia lists T as the #2 communications company in the U.S. based upon customer count and market capitalization.

Market Capitalization:  At $233.9, T’s market cap provides considerable stability which reduces risk.

Price to Earnings:  The trailing P/E of 11.3 is well within my range indicating investors aren’t overpaying for T’s future income stream.

Price to Book:  The P/B ratio of 1.3 is solid.  While it’s great to find a bargain for which I’d pay pennies on the dollar, paying pennies over a dollar for something delivering a yield above 6% is something I can readily live with.

Debt to Equity:  Debt to equity is nearly double my target and the reason for the red flag.  It’s also one reason T may not be a Wall St. favorite.  On the bright side, T made significant debt payments in 2018 and indicated it will continue that trend in 2019.

Dividend History:  Growing dividends for 35 years is not an easy task, but T appears to be in position to continue that trend into the future.  This is an important factor for Dividend Farmers.

Price Range:  The price is in the upper half of its trailing 12-month (TTM) range.  The range is fairly small – about $9 and the price isn’t rich by any stretch.  As a result, being in the upper half, while not ideal, isn’t a show stopper.

Payout Ratio:  At 70.5% the payout ratio is approaching my 75% target ceiling.  For some investors this indicates little room for dividend growth, but at 6.45% I’m not really looking for more.  Besides, the firm has managed small increases for 35 years.  I see no reason it can’t continue with minor increases for several years to come.

Portfolio Distribution:  T is a substantial holding in my basket.  Whether or not I’ll add more as investment funds become available is questionable.  While I like (T) I don’t want to go far overweight, particularly when other sectors of my portfolio are currently light.

Analysis  

Of the companies reviewed the past several months (T) has scored well across the board – better than the rest.  Although the debt load is higher than desired, it’s still manageable and the firm is working to bring it down further.  Given other, healthy metrics, (T) would be a solid add if I didn’t already have plenty in my kit.  I won’t be selling it any time soon while allowing the dividend stream to continue compounding.  At 6.45% the position will double in just over 11 years if it continues.  Knowing that helps this Dividend Farmer reach F.I.R.E – Financial Independence, Rest Easy.

The thoughts expressed here are those of the author, who is not a financial professional.  Opinions should not be considered investment advice.  They are presented for discussion and entertainment purposes only.  For specific investment advice or assistance, please contact a registered investment advisor, licensed broker, or other financial professional.

Dividend Farming Scorecard: Aerospace Comparison (UTX, GD, BA)

As a fan of the aerospace field I’ve looked at three of the major players in the industry since January.  Below are side-by-side comparisons of United Technologies (UTX), General Dynamics (GD), and Boeing Company (BA).

Charts like this are handy methods for sifting through multiple options quickly to filter the true opportunities from those that just won’t fly.  Although each has issues that may prevent a Dividend Farmer like me from investing, only BA is totally off the table.

FACTOR	TARGET METRICS	UNITED TECHNOLOGIES	GENERAL DYNAMICS	BOEING COMPANY
CCC List	Champion	Champion	Champion	Challenger
Current Yield	4.0%	2.45%	2.4%	2.20%
Company Profile	Red Flags	Treasury Stock?	Aerospace and Defense	Recent crashes.
Industry Leadership	Top 10	#3	#4	#1
Market Cap	$10 B+	$99.9 B+	$42.7 B	$211.2 B
P/E	< 20	17.8	15.4	20.9
P/B	< 2	2.5	3.6	626
Debt / Equity	< 1	1.1*	2.1	345
Dividend History	25 Years	25	27	8
12 Month Price Range	Lower Half	Top 10%	Bottom Quartile	Upper Half
Dividend Payout Ratio	< 75%	44%	35.30%	38.30%
Portfolio Weight	Slightly Over	Under	Under	Under
DATES		1.25.19	1.06.19	3.27.19

It’s possible an investor may look beyond the first three items.  For instance, an aggressive dividend growth trend coupled with a low payout ratio might shore up the low yield within a year or two.  Recent crashes are in receding in the rearview mirror and will be forgotten by Mr. Market before you can say ‘cleared for departure’. 

However, once a value investor gets to the Price-to-Book and Debt-to-Equity figures relative to UTX or GD, the game’s over.  Those figures aren’t going to correct to an acceptable level in the foreseeable future – if ever.

Although barriers to entry are high, which is good as far as investors are concerned, the aerospace segment carries inherent risk given the cyclical nature of the airline industry.  Add to this the potential for news-making catastrophes driving Mr. Market into an uncontrolled spin and there’s no need to add more risk with value metrics as far off the market as BA’s.  The upside isn’t there.

Analysis  

As mentioned in the original Boeing Scorecard, the recent 737 Max crashes may result in a buying opportunity for momentum investors or frequent traders looking to ride a wave for short-term gains.  I’m looking for something to hold for the long haul that provides an adequate return while minimizing risk to an acceptable level.  UTX and GD in that order are still investment options for the farm.  This is particularly true given the lack of aerospace or manufacturing in my portfolio.  As much as I admire Boeing’s products and history, this Dividend Farmer won’t be buying an BA.   

The thoughts and opinions expressed here are those of the author, who is not a financial professional.  Opinions expressed here should not be considered investment advice.  They are presented for discussion and entertainment purposes only.  For specific investment advice or assistance, please contact a registered investment advisor, licensed broker, or other financial professional.