Why Procter & Gamble (PG) is a Top Dividend Stock for Your Portfolio

Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. However, when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.

Cash flow can come from bond interest, interest from other types of investments, and of course, dividends. A dividend is the distribution of a company's earnings paid out to shareholders; it's often viewed by its dividend yield, a metric that measures a dividend as a percent of the current stock price. Many academic studies show that dividends account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.

Procter & Gamble in Focus

Headquartered in Cincinnati, Procter & Gamble (PG) is a Consumer Staples stock that has seen a price change of -8.41% so far this year. The world's largest consumer products maker is paying out a dividend of $0.75 per share at the moment, with a dividend yield of 2.61% compared to the Soap and Cleaning Materials industry's yield of 2.33% and the S&P 500's yield of 2.5%.

Looking at dividend growth, the company's current annualized dividend of $2.98 is up 2.9% from last year. In the past five-year period, Procter & Gamble has increased its dividend 5 times on a year-over-year basis for an average annual increase of 2.99%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm's annual earnings per share that it pays out as a dividend. Right now, P&G's payout ratio is 60%, which means it paid out 60% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for PG for this fiscal year. The Zacks Consensus Estimate for 2020 is $4.95 per share, which represents a year-over-year growth rate of 9.51%.

Bottom Line

From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. It's important to keep in mind that not all companies provide a quarterly payout.

High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. Income investors have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, PG is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Procter & Gamble Company (The) (PG) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research