Procter & Gamble: A Dividend King With a Recessionary Proof Dividend
William Procter, a British candlemaker, and James Gamble, an Irish soapmaker, met after marrying sisters. The two immigrants decided to combine their businesses in 1837, resulting in the formation of Procter & Gamble.
Procter & Gamble has grown into one of the world’s largest manufacturers of laundry detergents, baby wipes, diapers, paper towels, cleaning products, shampoos, deodorants, toothpastes, and other consumer goods.
The company's top brands include Luvs, Pampers, Tampax, Charmin, Downy, Tide, Cascade, Dawn, Febreze, Head & Shoulders, Old Spice, Pantene, Gillette, Braun, Crest, and Oral-B. Around half of sales occur outside of North America.
Procter & Gamble's strength begins with the firm's deep understanding of and continuous adaptation to evolving consumer trends.
Each year, P&G spends close to $2 billion on research and development, conducting thousands of studies to gain consumer insights and develop relevant product technologies.
With the right products under its wings, P&G cranks up its advertising budget, which regularly exceeds $7 billion per year (more than 10% of sales). It’s no wonder why consumers are so familiar with most of the company’s brands.
As a result, P&G's products dominate the shelves. Most of the company's 20-plus billion-dollar brands boast No. 1 or No. 2 positions in their categories. Consumers expect to find these brands when they shop, strengthening P&G's bargaining power with retailers regarding shelf placement, pricing, and in-store promotions.
Besides investing heavily in its brands to stay relevant, P&G is an enduring business due to the very nature of its industry. Simply put, non-food consumer products have historically been very sticky, resulting in a relatively slow pace of change.
In fact, roughly 85% of households in America are constantly filled with the same 150 items, according to IRI Market Advantage. At the same time, new product launches tend to have a high failure rate, which makes it difficult for smaller rivals with fewer financial resources to break into P&G’s market share.
But consumers are getting smarter with how they shop, using their smartphones to compare prices and check reviews on new, less expensive brands. Private label products continue closing the gap as well, with Costco's Kirkland brand one of the most visible examples across numerous categories.
Procter & Gamble has grown into one of the world’s largest manufacturers of laundry detergents, baby wipes, diapers, paper towels, cleaning products, shampoos, deodorants, toothpastes, and other consumer goods.
The company's top brands include Luvs, Pampers, Tampax, Charmin, Downy, Tide, Cascade, Dawn, Febreze, Head & Shoulders, Old Spice, Pantene, Gillette, Braun, Crest, and Oral-B. Around half of sales occur outside of North America.
Procter & Gamble's strength begins with the firm's deep understanding of and continuous adaptation to evolving consumer trends.
Each year, P&G spends close to $2 billion on research and development, conducting thousands of studies to gain consumer insights and develop relevant product technologies.
With the right products under its wings, P&G cranks up its advertising budget, which regularly exceeds $7 billion per year (more than 10% of sales). It’s no wonder why consumers are so familiar with most of the company’s brands.
As a result, P&G's products dominate the shelves. Most of the company's 20-plus billion-dollar brands boast No. 1 or No. 2 positions in their categories. Consumers expect to find these brands when they shop, strengthening P&G's bargaining power with retailers regarding shelf placement, pricing, and in-store promotions.
Besides investing heavily in its brands to stay relevant, P&G is an enduring business due to the very nature of its industry. Simply put, non-food consumer products have historically been very sticky, resulting in a relatively slow pace of change.
In fact, roughly 85% of households in America are constantly filled with the same 150 items, according to IRI Market Advantage. At the same time, new product launches tend to have a high failure rate, which makes it difficult for smaller rivals with fewer financial resources to break into P&G’s market share.
But consumers are getting smarter with how they shop, using their smartphones to compare prices and check reviews on new, less expensive brands. Private label products continue closing the gap as well, with Costco's Kirkland brand one of the most visible examples across numerous categories.
Procter & Gamble must constantly develop new and improved versions of current hit brands in order to maintain its premium prices and market share. With about $10 billion of spending on R&D and advertising each year, extensive global distribution networks, recession-resistant products, and an AA- credit rating, Procter & Gamble is well positioned to defend its turf.
These traits have also helped P&G pay uninterrupted dividends since 1890 and raise its dividend every year since 1957. The company seems like a safe bet to continue delivering safe income and steady payout growth in the years ahead, and in all economic environments.
