Tuesday, January 17, 2006
P&G has raised their dividend for 52 consecutive years. P&G has raised their dividend for . . . . How does a company exist for 52 years, let alone meet the payroll, pay the banks, taxes, and then be able to not only pay a dividend, but raise it for 52 years in a row. P&G has done so by selling modestly priced goods that people use every day and being an innovator in hundreds of products that fill our kitchens, bathrooms, and tummies. There really is no other company like P&G for extending their brands, and adding valuable contributors to their bottom line. They acquired Gillette in 2005 and continued their push into the beauty and personal care business. P&G, by any definition is a wonderful company, but is it already priced for perfection? My answer is an emphatic -- NO. I think it is cheap. The chart shows the actual price of P&G (blue line) vs. our dividend valuation model(red line) over the last 20 years. About all you need to get out of the chart is that the red line is higher than the blue line, meaning that P&G is currently selling lower than what our model says is its current valuation. Our model is estimating that if P&G raises its dividend this year by 10%, that its expected value would be about $71 per share. With the stock currently selling at just under $59, that means it is undervalued by nearly 20%. The stock yields near 2% and dividends have grown at over 10% per annum for the last 20 years. Remarkable, just remarkable.
Labels: Company Discussion