Should European Woes Worry Domestic Dividend Seekers?
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Procter & Gamble’s (NYSE: PG) recent guidance should be a wake-up call for dividend growth investors. No, Chicken Little, the sky is not falling, and the dividend bubble is not bursting. But the guidance, quickly echoed by PepsiCo (NYSE: PEP), reminds investors of the global origin of seemingly domestic dividends. Since PG and PEP create a product based apples to oranges comparison, a better apples to apples, or should I say diapers to detergent comparison might be found with Kimberly-Clark (NYSE: KMB), as both PG and KMB occupy the household products sub-sector of Consumer Staples.
To crawl backwards a bit, PG recently lowered their forecast for 4th quarter earnings, based in part on a slowing Europe. Fiscal year 2011 data tracks 20% of PG’s sales from Western Europe and just 41% from North America. PG suggests that the current European economic mal-odeur may negatively affect their bottom-line. KMB, by comparison, has about 16% of its 2011 sales from Europe and 50% from North America. While both companies offer dividends north of 3.5% and can boast long histories of dividend growth, investors need to look deeper into periodic filings to look for future chaffing and rashes to the portfolio. Where do profits come from and how will the global economy – developed and emerging – affect earnings?
For dividend growth investors, we see both companies continuing their strong commitment to sharing profits with shareholders. PG’s recent struggles have been reflected in its year-to-date share price, which is off more than 12% through June 22, but it did continue its long record of dividend increases with a 7% bump in the May dividend. KMB, in spite of decline in baby-bottom-diapering, has impressed investors by gaining of 8% during the same period. Its dividend, for comparison sake, saw an almost 6% increase in April. That 20% differential in return certainly can’t be explained by a mere 4% gap in European sales, but keeping an eye on across-the-pond profits needs to be part of a dividend growth investor’s research process. PG currently trades at attractive pricing, closing below $60, recently, while KMB seems a bit pricey trading over $81. A fairy tale friend of Chicken Little would say one may be a bit too soft and one may be a little too hard. So, keep looking (carefully) for the home product’s stock that feels just right.
Drummond Osborn, CFP® is President of OSBORN Wealth Management, an Indiana-based registered investment advisory firm. He provides his ideas and opinions for reader’s education and enjoyment, and herein, is neither offering recommendations to buy or sell specifics investments mentioned. Investors should consider their personal situation, conduct significant research and consult with a professional before investing in any securities. Investments are not bank deposits, are not insured by the FDIC, and have been known to lose value. Drummond is personally long PG and PEP, and has clients long PG, PEP & KMB.
Drummond personally owns PG and PEP and holds PG, PEP and KMB for current clients. The Motley Fool owns shares of PepsiCo and The Procter & Gamble Company. Motley Fool newsletter services recommend Kimberly-Clark, PepsiCo, and The Procter & Gamble Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
