Summary
- Procter & Gamble is a legendary company with a dividend history that makes it a Dividend King, having raised its dividend every year since 1957.
- While the company faces risks, I believe the company will continue to make the appropriate moves to adapt to an ever-changing business environment.
- With that said, Procter & Gamble is trading at a 16% premium to fair value, and that's simply too much, at least for my liking.
- Between the starting yield of 2.8%, likely earnings growth of 6-7%, and multiple contraction of 1.5%, Procter & Gamble is likely to deliver 7.3-8.3% total returns over the next decade.
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As the adage goes, "price is what you pay, value is what you get." While I'm all for purchasing excellent companies and holding them for the long-term as long as their fundamentals remain intact, there comes a point at which the valuations on some companies become too stretched to offer satisfactory total returns going forward.
One such company that is currently experiencing this is Procter & Gamble (PG). Procter & Gamble is undoubtedly one of the greatest DGI companies of our lifetime, but valuation is important regardless of the quality of the company and it can only be so stretched before total return potential starts to noticeably drop off a cliff.
