Irrespective of the external factors and market volatility, certain stocks never lose their favor among customers and investors. Procter & Gamble (PG, Financial) is one of them. The consumer stock giant is known for marketing a range of products; diversification is the key area of success for P&G. Recently, the management of P&G announced the way-forward for the company. It looks like the company is all set for a successful year this time as well. Let us now see why Procter & Gamble enjoys an edge over its peers and why investors can still hold on to their stakes in this company.
Planned divestment
The management of P&G recently announced that it will focus on divesting close to 100 small brands this year, focusing only on the bigger and more important brands. By the middle of year 2016, Procter & Gamble is looking at reducing its brand portfolio by 60% in a phased manner. Due to this, annual sales of P&G will be reduced by $11 billion and profits will come down by 6%. Nevertheless, P&G is looking at a strong year ahead as it will now work toward increased strength on its powerful brands only. When P&G is done with all its brand restructuring initiatives, it will only be left with close to 70 huge brands in departments like personal care, fabric care, baby care, family care, health care and the like. Wall Street experts are of the opinion that with this limited exposure P&G will be able to improve on its brand image in a more efficient manner.
Value to shareholders
The other reason why investors should hold on to Procter and Gamble is because of the value the company provides. Through dividends and share repurchases, P&G tends to return a huge sum to investors year after year. For the year 2015, investors will be paid back to the tune of $12 billion, out of which, close to $5 billion will be in the form of share repurchases and $7 billion will be in the form of dividends. Through all this, the dividend yield of P&G is expected to touch a whopping 5% during 2015.
At present, the dividend yield of P&G is 3%. The annual dividend per share right now is $2.57. This value is expected to increase up to $2.70 per share, thereby bringing the pay-out ratio to close to 80%. The EPS of P&G is expected to touch $3.01 per share.
Great financial strength
One of the greatest strengths of Procter & Gamble is its ability to generate free cash flow. Currently the cash flow generating capacity of the company is way higher than most of the big companies existing today. One example is that of the retail agent, Walmart (WMT, Financial). The retailer reported revenues worth $476.3 billion during 2014 and had free cash flow worth $10.1 billion. On the other hand, P&G, though reported lower revenues of only $80.5 billion, generated the same level of cash flow as that of Walmart’s ($10.1 billion), which is quite a phenomenal rate indeed. The total returns that it had generated over the years has been on an increasing trend over the last few years.
Conclusion
With all these factors in mind, Procter & Gamble is definitely a stock that investors should hold on to dearly. Dividends are more than reasonable, business strategies are on the right path, capacity to generate free cash flow is one of the best in the market and the balance sheet of the company looks great. These factors are more than enough to vouch for the future stability and success of P&G.
