Monday, August 6, 2007

Procter & Gamble

Currently making up 8% of my portfolio is global consumer products behemoth, Procter & Gamble....

The Procter & Gamble Company manufactures and markets a broad range of consumer products in many countries throughout the world. Products fall into five business segments: fabric and home care, paper, beauty care, health care, and food and beverage. Today, P&G markets more than 250 products to more than five billion consumers in 130 countries.

This business is based on something that I value very much when investing for the long-term, that something is ‘BRANDS’. Procter & Gamble has over 20 ‘Billion-Dollar Brands’, brands with over 1 Billion dollars in revenue annually. These brands include Tide, Crest, Gillette, Duracell, Folgers, and Olay among many others.

The company recently announced an earnings increase of 18% from 2006, and they are increasing their share buyback program from the current range of 5-6 Billion dollars per year to 8-10 Billion dollars per year. The company has a long term goal of growing earnings by 10%+ annually.

Some Selected Financials and Fundamentals:

Net earnings have increased at a compounded rate of over 14% over the past 4 years.

Net margins have increased every year since 2001.

Return on Equity has averaged 28% over the past 10 years, has come down since the Gillette acquisition.

Shareholder Returns Historically

Here’s the good stuff that we are all interested in, as prospective and current shareholders…

The stock value has grown ten-fold over the past 20 years. That’s about a Compound Annual Growth Rate (CAGR) of 11%.

Dividends have been raised for 50 consecutive years at a CAGR of over 9%. Over the past 10 years the CAGR of dividends has been 11%.

The stock usually yields around 2%, so over the past 20 years shareholders have seen a total return of around 13% per year.


Keys for the future success of the company will be expanding fully into all developing markets around the world, continuing industry leading product innovation, and keeping costs low.

2 comments:

Lado said...

With all that you have stated, what do you know that others don't? P&G, due to its market cap, is followed by dozens of analysts and as such should be fairly priced. There is a difference between a great company and a great stock as I know you are aware. Not trying to be condescending but rather promote a discussion. I focus on small caps because I tend to find better value there but if you are comfortable with large caps that, I think, are generally more efficiently priced, that's fine.

moneygardener said...

lado,

I do not claim to know anything about P&G that others don't. Currently I do not believe PG is significantly below it's fair market value. I do believe though, that there are opportunities to buy companies like this for the long term when other investors dump the stock for more short-term reasons. Just because a stock is widely followed does not mean it can not be bought at a discount on occasion. This discount could arise from sales due to speculation, haste, or short term trouble.

The same would be true with small cap stocks. The fact that they are not followed as closely or widely held might actually increase the chances that those investing in the firm 'know what others don't' or hold insider information.