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Leigh Baldwin & Co.

112 Albany Street, Cazenovia, NY 13035 | Phone: (315) 655-2964 Toll Free: 1-800-659-8044

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Stock of the Week


March 13th 2009 Proctor & Gamble
NYSE Symbol: PG
Industry: Pharmaceutical
Stock price as of 3/13: $46.95

The dividend cuts keep coming. A surprise dividend cut two weeks ago from JP Morgan set off a flurry of other top financials cutting their dividends including GE and Wells Fargo. Luckily there are a few blue chip defensive companies maintaining or raising their dividends. In the last several months, I have featured seven companies that have raised their dividends in the last year. The list includes 3M, McDonalds, Travelers, Kimberly Clark, Heinz, Caterpillar, and Coca Cola. This week I'll feature an eighth blue chip S&P 500 company that has raised their dividend for at least the last 36 years. The featured stock of the week is Proctor and Gamble, better known as P&G. The company boasts a remarkable 23 brands that each generate $1 billion or more in annual sales, including household names like Gillette, Head & Shoulders, Dawn, Bounty and Charmin.
P&G is off to a rocky start in 2009, like most stocks, down 25% following in line earnings back in January. On January 29th, P&G reported earnings of $1.58 a share for the second fiscal quarter. Revenues fell 3.2% to $20.37 billion. The results were in-line with analysts forecasts. Procter & Gamble expects to earn between $0.78 and $0.86 per share during the current quarter also in line with estimates. As for fiscal 2009, the company expects earnings in a range of $4.20 to $4.35 per share, once again in line with concensus estimates. P&G is not recession proof, but hopefully recession resilient. P&G is focusing on shifting funds to coupons and promotions that deliver better value. They are prioritizing cash and profitable share growth with a focus on turning this crisis into an opportunity to simplify their operations and organization. Commodity prices have moderated helping things. The company spends a little less than $2 billion on commodity and energy costs per year. Other than commodity prices, foreign exchange remains highly volatile and is expected to reduce sales by about 5% this year.
With the recent pullback in P&G, the valuation only gets better. There's nothing sexy about P&G's business, but its scale and relative stability still make it an attractive stock for these times. The stock trades for 11 times earnings, 1.6 times sales, and 2.1 times book value. P&G raised their dividend an impressive 14% last April. I'm not saying they'll do the same this year, but even if the dividend remains at 40 cents a quarter, the yield remains an impressive 3.5%. The company should go ex-dividend in the middle of April. Following the earnings report in January, Caris downgraded the stock, but maintained a lofty $60 price target. Barrons Online recently put out a positive piece on the consumer stable company saying that on a forward price-to-earnings basis, P&G is now cheaper than it's been in 20 years.