Procter and Gamble – an expensive dividend aristocratic

Following the March sell-off on the back of the concerns of the impact of Covid-19 pandemic on economic activity, the stock rose to an all-time high at the beginning of September.

Better than expected results in the April – June period and the expectations for a positive growth rate in the coming quarters as economic cycle has a limited impact on Company’s sales contributed to the last few months positive trend.  

In the period April-June, sales rose 4% (+ 6% in organic terms) for the positive contribution of both volumes and price mix. EBIT and EPS exceeded consensus expectations. For fiscal year 2021, the company guided for a 1-3% net sales increase (organic sales up 2/4%) and for a 3-7% EPS increase (adjusted for extraordinary items), in line with consensus estimates.

The P&G steady growth rate over the years increased company’s appeal on investors.

P&G is a dividend aristocratic, meaning that it has increased its dividend every year for at least 25 years. The company’s dividend yield is now 2.3%, higher than the 0.7% yield offered by the US 10-year government bond.

However, we think that the stock is now expensive on multiple valuation: the Ev / Ebitda is at 17.9x against an average since 2013 of 14.2x.  While the low level of government yields plays a role in increasing multiple valuation, we think that it is hard to envisage a strong appreciation of stock price from current valuation.

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