The Procter & Gamble Company (PG) Q1 2019 Results Earnings Call Transcript

It is a commonly held fact that the rich work for assets whereas the middle class and working class work for money. So, how does this paradigm play itself out in the real world? Whereas, for most of us, the "modus operandi" is to get a good education and then hopefully a high paying job, the way of the rich is to seek out investments, businesses, real estate, etc.

So, instead of doing a 9 to 5 where one is selling their time for a paycheck, one could spend those 40 hours a week researching viable "assets" for investment purposes. When you take a step back from the options here, it definitely does make sense (from an economic standpoint) to take the road less traveled. Why? because one is going to become a far more productive "asset gatherer" literally by the amount of time and experience one can invest in this endeavour.

I state, though, "from an economic standpoint" because undoubtedly, there are people out there who love what they do for a living. For these folks, the monetary gain comes in a distant second to their chosen vocation. I 100% respect these people because they are truly living on purpose. People such as childminders, nurses, engineers, teachers, etc. It usually is evident when a person is working where he or she is supposed to be working. These people have passion written all over them when performing.

However, if a person wants to go the "success" route, the accumulation of assets can enable a person reach his or her goals much faster than working for money. The reason being is that an asset can pay dividends indefinitely whereas a "job" only pays you for the hours you put in. Suffice it to say, if you stop working, so does that income stream pretty quickly thereafter.

Many times, people get faked out by the word "asset". Real estate and businesses come to mind, but when one is starting out but one does not have to get their feet wet initially with vehicles such as these. For example, one share of the Procter & Gamble Company (PG) is an asset once it has been purchased. Currently, the share price is about $112, and the annual dividend payout is just under $3. So, all things being equal, for every share of P&G one can pick up, the company will pay you back almost $3 per year. This investment is an asset irrespective of its size. You pay once, but you collect an income stream indefinitely. To gauge how viable future P&G dividends are, just go through the following.


Dividend Growth

P&G has grown its annual dividend payout by 62 years now. The 1-year growth rate of 4% is above both the 3-year average of 2.58% and the 5-year growth rate of 3.72%. Dividend growth is important as it protects against purchasing power erosion, plus it is also a sign of healthy profitability.

Payout Ratio

Although this company has downsized quite a bit in recent years, free cash flow numbers have remained buoyant. In fact, although top-line sales are down about 4.5% over the past five years, free cash flow has still been able to eke out a 2% annual on-average gain over the same time period. Around 62% at present of the firm's cash flow is being paid out in dividend payments. 68% was the number back in 2014, so the trend here is encouraging.

Interest Coverage Ratio

This ratio calculates how much of the firm's operating profit is going towards interest-bearing debt. Over the past five years, the ratio has increased from around 22 to currently over 26. Suffice it to say, debt payments do not look like getting in the way of dividend growth going forward

Debt To Equity

P&G has always run a very conservative balance sheet. Although this key ratio has increased from 0.29 to 0.39 over the past 5 years, we still are at very benign levels. Again, there are no signs here that the company will have any problems with its balance sheet any time in the near future.

So, what do the above numbers and trend mean for the person who wants to start accumulating assets? Well, in our opinion, one could do worse than something like P&G. Its track record and present state of affairs pretty much confirm that its dividend will keep on growing. Will the price fall from here? Most probably. However, we would bet strongly that the income (dividend) side of this investment will never fall or at least not fall for many years to come. This is what you should be focusing on. That rising positive cash flow. Just $112 and you are in the game. You ready?

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