Procter & Gamble (PG) Could Be a Great Choice

Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But for income investors, generating consistent cash flow from each of your liquid investments is your primary focus.

While cash flow can come from bond interest or interest from other types of investments, income investors hone in on 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 make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.

Procter & Gamble in Focus

Procter & Gamble (PG) is headquartered in Cincinnati, and is in the Consumer Staples sector. The stock has seen a price change of 9.58% since the start of the year. The world's largest consumer products maker is paying out a dividend of $0.94 per share at the moment, with a dividend yield of 2.34% compared to the Soap and Cleaning Materials industry's yield of 2.32% and the S&P 500's yield of 1.54%.

Taking a look at the company's dividend growth, its current annualized dividend of $3.76 is up 2.1% from last year. Procter & Gamble has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 6.03%. 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. P&G's current payout ratio is 59%. This means it paid out 59% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for PG for this fiscal year. The Zacks Consensus Estimate for 2024 is $6.45 per share, which represents a year-over-year growth rate of 9.32%.

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. However, not all companies offer a quarterly payout.

For instance, it's a rare occurrence when a tech start-up or big growth business offers their shareholders a dividend. It's more common to see larger companies with more established profits give out dividends. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. That said, they can take comfort from the fact that PG is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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