Meet the Dividend King Stock That Yields More Than Quintuple the Nasdaq-100. Here's Why It's a Buy in October.
Key Points
Procter & Gamble has paid dividends for the last 136 years.
It has raised its dividend for 70 consecutive years.
The company produces plenty of cash flow to support payments.
The Nasdaq-100 index is known for including large technology companies like Apple (NASDAQ: AAPL) and Nvidia (NASDAQ: NVDA). These growth companies have provided strong gains over the years. However, its stocks tend to be more volatile.
For investors seeking less volatile price swings with reliable dividend income, look no further than Procter & Gamble (NYSE: PG). The shares have a dividend yield of 2.8%, more than five times the Nasdaq-100's 0.5%. It's also nearly three times higher than the S&P 500 index's 1% yield.
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Here's a closer look at the company to see why dividend investors should strongly consider Procter & Gamble's shares.
Image source: Getty Images.
Impressive history
Procter & Gamble doesn't appear to operate an exciting business. It sells products like shampoos, razors, deodorants, toothpastes, detergents, and diapers. However, it has popular brands with high market shares, such as Head & Shoulders, Tide, Gillette, and Pampers.
Selling these types of products also makes the company's results resilient to economic cycles. That's because people need them, no matter what's going on with their personal financial situation.
In fact, you'd be hard-pressed to find a company with as impressive a dividend history as Procter & Gamble. It has made payments for 136 years and raised them for 70 straight years. That makes the company a Dividend King, a group of companies that have increased dividends for at least 50 straight years.
Most recently, the board of directors approved a solid 3% hike to April's payment. Procter & Gamble currently pays a $ 1.0885-per-share quarterly dividend.
Streak set to continue
Of course, an impressive dividend history doesn't mean much if a company can't afford to continue paying and raising payments. Fortunately, Procter & Gamble's ability to pay dividends isn't in question.
One look at the company's cash flow tells you all that you need to know. For the latest fiscal year, which ended on June 30, Procter & Gamble generated free cash flow of $15.1 billion. That easily covered the company's $10.2 billion in dividends.
Free cash flow is an important measure since it's operating cash flow minus capital expenditures. Put another way, it's the amount of cash the company produces from operating the business, less the amount expended for investing in long-term assets.
With a relatively high dividend yield, a long history of dividend increases, and plenty of cash flow to support payments, Procter & Gamble has earned a place in the portfolios of investors seeking dividend-paying stocks.
Lawrence Rothman, CFA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple and Nvidia. The Motley Fool has a disclosure policy.