Procter & Gamble Co. (PG) has increased earnings and dividends year over year and generated ample free cash flow, positioning itself for long-term growth through strong management and enduring competitive advantages, says Kurt Hoefer, Portfolio Manager and Research Analyst at Golub Group LLC.
“Since the beginning of 1991, Procter & Gamble’s dividend has grown at a compounded annual rate of 10.5%. This is not by accident. Over that time Procter & Gamble has generated free cash flow — that is, cash generated by its operations in excess of the company’s capital expenditures — of $125 billion,” Hoefer said.
This free cash flow has allowed P&G to fund acquisitions, buy back stock and pay dividends to shareholders despite the weaknesses in the U.S. economy, Hoefer says, making it a great illustration of the value of long-term investing in solid equity rather than fixed income.
“Compare the current 2% yield in a long-term government bond versus a 3% dividend from a company like Procter & Gamble. If purchased today, with the Treasury, 2% is the best you will get over the life of that bond. But if the future is like the past for a company like Procter & Gamble, the dividend will continue to rise as the business grows and produces higher and higher free cash flow,” Hoefer said.
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