Procter & Gamble: Legacy Favorite

06/24/2014 8:00 am EST


Ian Wyatt

Publisher & Chief Investment Strategist, Wyatt Investment Research

Legacy stocks—ones you can pass on to your heirs because you know they will reliably build wealth through multiple generations—are becoming scare, observes Ian Wyatt, editor of High Yield Wealth.

One company that still fits the bill is Procter & Gamble Co. (PG), which owns the best portfolio of consumer-products brands in the world. It boasts a global presence few companies can match.

It has a long history; it's been around for 124 years...and has paid a dividend every one of those years. What's more, the dividend grows 8% to 10% year after year, for 58-consecutive years.

Brand power—Tide, Crest, Charmin, Pampers, Gillette, Bounty, Cascade, Duracell, Old Spice, Oil of Olay, and many more—backed by unrivaled quality, puts P&G's revenue miles ahead of the competition.

The company peddles its wares in 180 countries. Despite its considerable size and global penetration, P&G keeps the needle moving through product extensions, forays into emerging markets and Asia, and symbiotic acquisitions, such as the 2005 Gillette purchase.

The ride was bumpy during the 2008-2009 financial crisis. Over the past ten years, P&G's share price has appreciated at a 3.8% average annual rate.
This isn't spectacular by any stretch of the imagination, but it's forward. With dividends included, investors realized roughly 8% average total returns each year.

The good news is that P&G management is implementing change. The company's sales and marketing organizations are being drastically reorganized.

P&G management has targeted one billion new customers by the end of 2015. To service these customers, it plans to complete 20 manufacturing facilities in Brazil, China, and Eastern Europe by 2015.

For this fiscal year, P&G has guided EPS to come in around $4.20. That's an 8.8% increase. We conservatively estimate another 8% increase for 2015.
Based on our estimates, we believe P&G is undervalued. We are confident management will execute its initiatives. Performance will improve, and the multiple investors are willing to pay will rise, as will the share price.
We expect to see P&G shares trade at $90 this time next year. That's a 12% increase. Toss in the 3.2% yield on the dividend, and investors should conservatively expect a 15% total return over the next 12 months.

Investors seeking a stock that they can pass to the children, grandchildren, and so on, should look no further than PG. This is the ultimate legacy stock.
Today, investors get first-class dividend growth, near-certainty of price appreciation, and peace of mind from owning the best-branded company in the world. Best of all, they get all this at a discounted price.

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