P&G Hikes Dividend by 7% - Analyst Blog

The board of directors at The Procter & Gamble Company PG recently announced a 7% increase in its quarterly dividend — the 57^th consecutive year of dividend hike for the consumer giant.

The quarterly dividend was increased from 60.15 cents to 64.36 cents per common share. The quarterly dividend will equal an annual dividend of $2.58 which will yield 3.2% annually.

The higher quarterly dividend will be payable on or after May 15, 2014 to common stockholders of record on close of business as on Apr 25. The current dividend hike is the same as last year's.

In addition to regular dividend hikes, P&G has consistently enhanced shareholders returns via share repurchases. The company repurchased shares worth $6 billion in fiscal 2013, $4 billion in fiscal 2012 and $7 billion in fiscal 2011. In fiscal 2014, the company expects to repurchase $5–$7 billion shares.

P&G's strong cash position allows regular dividend hikes and share buybacks. During fiscal 2013, the company generated $10.9 billion in free cash flow, reflecting 95% cash flow productivity, ahead of the 90% target. In fiscal 2012 and 2011, the cash flow productivity was 90% and 84%, respectively. The cash flow has allowed P&G to return $98 billion of cash to shareholders over the last 10 years through dividend and share buybacks, which is 96% of the reported earnings.

However, though regular shareholders returns keep investors' faith in a stock, the company needs to show consistent top- and bottom-line strength to hold their attention. P&G has been struggling on this front. Currency headwinds, rising commodity costs, increasing competitive pressures, challenging consumer spending environment in the U.S. and volatile market dynamics in other countries have been pressuring sales and profits of this Zacks Rank #4 (Sell) company.

Other Stocks to Consider

Some better-ranked stocks in the consumer staples industry are The Hershey Company HSY, J&J Snack Foods Corp. JJSF and Diamond Foods, Inc. DMND. All these stocks carry a Zacks Rank #2 (Buy).