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    Investing· Stocks

    Procter & Gamble DRIP – Still a Smart Investment?

    By Retire Before Dad

    This page may contain links to our partners. RBD may be compensated when a link is clicked. See the full disclosure here.

    Update: I received an email indicating PG has left Computershare for Wells Fargo Shareowner Services and is raising fees. I find this disappointing as we’ll need new accounts at WF. Because of the fees I no longer recommend the Procter & Gamble DRIP. Revolt Against Fees!

    For information on how to transfer shares out of a DRIP, see my post on it here.

    Instead of new DRIPs, I now recommend M1 Finance. It’s now 100% free to buy and sell stocks. No commissions. No trading fees. Very easy to dollar cost average into stocks or ETFs.

    Hard to believe it’s 100% free? Read my full M1 Finance review here to learn why they believe the future of personal finance is free. 


    One of my financial goals for the year was to end the year owning at least 20 different stocks in my taxable portfolio. I am still working to further diversify my dividend growth stock portfolio, a lesson I learned during the financial crisis when I was overweight two financial stocks and they severely cut their dividends. This most recent purchase brings my new total to 17 stocks in my portfolio.

    Recently, I initiated a new position in the Procter & Gamble DRIP. There’s been some healthy debate in the dividend blog world about whether or not dripping and automated reinvestment is the best strategy.

    I participate in DRIP programs through transfer agents and selectively buy shares in my traditional brokerage account using dividends received. In the case of Procter & Gamble, I decided to go with the DRIP to build a position slowly through periodic purchases and reinvestment.

    After I describe why I’m buying Procter & Gamble, I’ll go into detail as to why I chose the DRIP program instead of buying it in larger bites.

    Why the Procter & Gamble DRIP?

    There is no such thing as a no-brainer when it comes to investing. But the Procter & Gamble DRIP comes close. It’s a must own for dividend growth investors over the long-term. Here’s a few statistics from their website:

    • 176 years in business
    • Products in 180+ countries
    • 58 straight years of dividend increases
    • 25 different brands generating a billion in sales each
    • $84 billion in total annual sales

    The 25 individual billion dollar brands stat is impressive. These brands will not shrink over the next 20 years, they will grow. Brands of this company include Tide, Bounty, Pampers, Cascade, Charmin, Braun, Oral B, Duracell and Vicks (I just bought some Vicks Nyquil for my cold). All of this is stuff many of us use every day. If you buy the store brand equivalent, Procter & Gamble frequently makes those as well.

    The company recently announced a 7% dividend increase. Over the past 5 and 10 years respectively, Procter & Gamble has increased its dividend by an average rate of 8.8% and 10.6%. The new annual dividend amount is 2.5744 per share, yielding 3.19% as of Friday’s close.

    The trailing 12-month PE ratio is 21.69 and the forward PE is 17.71. Analyst estimates for the next 5 years indicate an earnings growth rate of 8.7%, suggesting that the dividend growth rate can likely continue in the high single digits.

    I am not an active or nimble trader. During the day, I have access to my phone to look up quotes and make trades, but I have a job that does not involve the stock market. At times, I’ll set a limit order to buy a stock in the evening and then wait for it to execute the next day, but I find this method to be challenging, often buying high in a down market day, or not executing the trade at all.

    For a long-term investor like me, a difference of $0.50 per share on a purchase price shouldn’t matter. But then again, entry price does matter in dividend growth investing.

    In early February, Procter & Gamble dipped to around the $76 level. It was a great opportunity to buy, but I missed it. The stock price quickly recovered into the high 70’s and low 80’s shortly after the dip. In fact, it has dipped three times to that level in the past 12 months (see chart below).

    Procter & Gamble’s beta stands at .4, meaning that it is less volatile than the market (1.0). In other words, Procter & Gamble trades in a tighter range than the market and infrequently dips to cheap levels or rises to dear levels. The dips of a great dividend growth stock often don’t last.

    Procter & Gamble DRIP

    As a stalwart company that trades with low volatility, it is difficult to buy this stock cheap. It trades at a premium because there are so many buy and hold investors and employee owners who enjoy the consistent dividend.

    Since I’m a slowpoke investor and good opportunities to buy this company at a discount are scarce, I’ve decided to start a DRIP to slowly build my position over the next few years, reinvesting the dividends to further increase my shares.

    Once I feel it is a comfortable percentage of my portfolio, I’ll then selectively invest my dividends elsewhere. If I continually wait around for a better price, I may never get it, or I could miss it again. I’d rather set it up to invest on autopilot and watch my position grow.

    The Procter & Gamble DRIP is administered by Computershare. One upside is that I already have a number of holdings through them including, Coca-Cola (KO), Chevron (CVX), Emerson (EMR), Bank of America (BAC) and Aqua America (WTR).

    I don’t need to open a new account to start this Procter & Gamble DRIP, keeping my logins to finance websites under control. A downside in comparison to my traditional brokerage account is that the dividends I receive will be reported to the IRS separately, burdening me with another 1099-DIV at tax time. I’ll also need to track my cost basis. Neither issue bothers me as I already do this for my other holdings. Plus, I don’t plan to sell Procter & Gamble for at least 20 years.

    Another huge plus to this move this that the Procter & Gamble DRIP has no fees if I use automated bank drafts and don’t sell. So I’ll slowly build my position over the next few years at no cost, dollar cost averaging and reinvesting my dividends to lower my cost basis. I’ve had a lot of success building positions like this is the past so I’m confident this strategy will be positive for my retirement plan.

    One other downside to this purchase is that my portfolio is already heavily weighted toward consumer goods. I wrote about this in a post called Developing a Game Plan Using Sector Weighting. For the remainder of this year, I’ll be analyzing my sector weightings from time to time and adding where I’m underweight.

    Even though Procter & Gamble is another consumer goods company, I am quite comfortable adding it to my portfolio and I can aim to buy other sectors later in the year.

    High School Economics 101

    During my senior year in high school, I took an economics class and first started learning about investing. That class is what led me to major in finance in college. As an exercise, we all picked a stock at the beginning of the semester to see how it performed.

    I chose Gillette based on I’d heard of it when I was looking at the G’s in the stock section of the newspaper. Years later in 2005 Gillette was merged into Procter & Gamble.

    I didn’t buy Gillette with any real money, only fake classroom dollars. But I continued to follow the stock regularly until it merged. While studying Gillette in my class and reading books by Peter Lynch I realized the power of strong brands.

    A few years later, and after some college marketing classes, I started investing in Coca-cola. Coca-cola is the second oldest holding in my portfolio behind Chevron.  But I never bought any Gillette or Procter & Gamble.

    Well, that ends now. I’ve opened my new position in the Procter & Gamble DRIP with a $500 starter purchase and I’ll be initiating automatic purchases every two weeks in the amount of $50. That way I’ll be buying $100 worth of Procter & Gamble per month.

    If the market or the stock hits a slump, my purchasing power will increase and I’ll likely increase my purchase amounts, or make one-time purchases. At a price of $80.76 (Friday’s close), Procter & Gamble is down 5.9% from its 52-week high.

    While not great, I’m OK with that because of the reasonable PE ratio, strong brands, and superb history of increasing dividends. Over time, dollar cost averaging into Procter & Gamble will make it a reliable income producing asset well into retirement.

    Looking for an automated way to calculate your net worth? Forget spreadsheets. Check out Personal Capital. This tool has COMPLETELY CHANGED the way I handle my finances. 

    Do you own Procter & Gamble?  Did you use the Procter & Gamble DRIP program or buy it in big lots? How long have you been a shareholder?

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    Retire Before Dad

    I’m a 45-year-old IT professional, investor, and blogger based in the Washington, DC metro area. My primary financial goal is to retire at age 55, one year before my Dad retired. I write about how to build income streams so you can explore the unusual. Read the whole story HERE.

    Filed Under: Investing, Stocks Tagged With: dividend growth investing, dividends, drips

    Comments

    1. Please note: Responses are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser's responsibility to ensure all posts and/or questions are answered.
    2. Roadmap2Retire says

      April 14, 2014 at 8:59 am

      Congrats on initiating a new DRIP program, RBD. P&G is a great company and will reward the stockholders for years to come.

      Best wishes
      R2R

      Reply
      • Retire Before Dad says

        April 14, 2014 at 9:53 am

        That’s the thinking. This one should help carry me into retirement with fairly low risk.
        -RBD

        Reply
    3. JC @ Passive-Income-Pursuit says

      April 14, 2014 at 9:09 am

      I can’t fault you for starting a DRIP with P&G. They have a great track record and even if growth doesn’t come back at a rapid pace the usefulness of their products won’t be going anywhere. There’s been a lot of talk about how P&G is dead money but I think it’s anything but that. The company is still great and they continue to increase their dividends. It looks like a bit of a turnaround story here as operations have been improving over the last 6 months or so and I expect that to keep up going forward. It looks like the DRIPs you have set up are all great companies that typically trade at a premium. It’s a shame that they don’t get undervalued that often so using the DCA strategy should work out quite nicely over the long run.

      Reply
      • Retire Before Dad says

        April 14, 2014 at 9:55 am

        JC,
        Trying to buy great companies when they are undervalued is the challenge. Mega caps like PG are even more difficult. The drip in this case is my best chance to build a good position over time.
        -RBD

        Reply
    4. Income Surfer says

      April 14, 2014 at 9:39 am

      Hi RBD. I also own Procter and Gamble through their drip. I have been an owner since 2008. It’s a good company, but has disappointed me a little bit with their expansion into emerging and developing markets. One of the reason I have long term holdings through DRIPs is specifically because it slows me down. I have learned I am slower to buy and sell……and therefore think about it more. I’m looking to add to PG in the future years
      -Bryan

      Reply
      • Retire Before Dad says

        April 14, 2014 at 9:57 am

        Awesome. I hope you were able to pick up shares through the crisis. Your YOC must be quite good. In ten years I am confident I’ll have a healthy position yielding over 5% on my cost.
        -RBD

        Reply
    5. SavvyFinancialLatina says

      April 14, 2014 at 5:28 pm

      I haven’t dived into individual stock purchases unless you count my company’s ESPP. I’m adding more Vanguard index and ETF funds to my portfolio. It’s easy for me.

      Reply
      • Retire Before Dad says

        April 15, 2014 at 9:30 pm

        SFL,
        Index investing is certainly a good route to take if you are not comfortable with stocks, or don’t have the time to research investment. I also buy Vanguard ETFs in my retirement accounts. Great company with low fees. Thanks for stopping by!
        -RBD

        Reply
    6. Dividend Mantra says

      April 15, 2014 at 9:11 pm

      RBD,

      Great job. PG is one of my favorite companies for sure. Although it’s not currently one of my biggest positions, I hope to change that over time.

      Glad to have you on board as a fellow shareholder, and a loyal and long-term one at that!

      I’m sure you’ll be very happy with the DRIP 10 or 20 years from now.

      Best wishes!

      Reply
      • Retire Before Dad says

        April 15, 2014 at 9:36 pm

        DM,
        Ya know, I forget to mention in this post that my Great Uncle worked for them for something like 40 years. Started in the mail room, and worked his way up to a VP level. I imagine he received and bought the stock during that entire period of time. I know that he is living off his dividends today, and he’s undoubtedly diversified out of it some. He retired at least 15 years ago so he’s owned the stock for more than 55 years! I need to ask him about that next time I see him. I’m glad to finally join the party.
        -RBD

        Reply
    7. writing2reality says

      April 15, 2014 at 10:43 pm

      Love the strategy here with PG and think you’re making a good move with the biweekly purchases. Should allow you to build a position over the next few years without worrying about market timing or other swings outside of our control.

      You’re uncle is almost assuredly sitting on a goldmine… my fiance’s grandmother passed away in the fall and had slowly stashed some money in some solid dividend growth stocks. A little Exxon, Pepsi, etc. Amazing to say, this pocket change portfolio of hers was worth almost seven figures at the time of her passing. Worthy of a post sometime, but a similar situation to your uncle, minus the benefit from working for one of those companies!

      Reply
      • Retire Before Dad says

        April 17, 2014 at 7:10 am

        W2R,
        He’s in his 80’s now and living comfortably. He was never the kind of guy to over spend, he remained frugal through all of his years of working. We talk about investing when I see him and he is very much focused on income because of his age. If history holds true and we keep to our strategy, we’ll all be quite wealthy in our 80’s.
        -RBD

        Reply
    8. Alex says

      April 16, 2014 at 1:26 pm

      I initiated my position with PG ( DRIP) this February… second time. I’ve learned my lesson about dividend growth investment hard way. Second time because I’ve owned this stock many years ago and suddenly looked at my brokerage account history and realized how wrong I was.

      Back in 2000 I worked in downtown Cincinnati, city where everything were spinning around PG.
      A very bad event happened to PG in March 2000 when stock dropped from mid $80 to around $56. So many people close to retirement age were forced to postpone their plans and work longer. It was very sad week for the city.

      I bought 30 shares @$60 that week, received two dividends ( ~$10 and ~$12) and sold in September 2000 @$62 with happy profit of ~$82. If I kept my shares even without dividends my original $1,800 investment would be [email protected]$81.50 = $4,890 today. Can someone calculate how much I would have today counting dividends on my original investment of [email protected]$60=$1,800 (from March 2000)?

      So, this time I am going to keep my DRIP much much longer.

      Reply
      • Retire Before Dad says

        April 17, 2014 at 7:06 am

        Alex,
        We could calculate how much you would have made if you include dividends in the scenario above. But I don’t think that would be a good use of time. We need to look forward, and only acknowledge our past mistakes and learn from them. No doubt that selling PG for a small profit seemed to be a good move at the time, but holding would have been a better decision. Use that mistake to become a better investor. I’m keeping my PG for a long time too.
        -RBD

        Reply
    9. Zach @ Dividend Ladder says

      April 16, 2014 at 4:43 pm

      Great decision on PG. I like your perspective on letting the position grow and then re evaluating when it becomes a larger part of your portfolio. I always re invest my dividends but I don’t DRIP much myself because I like more control.

      Reply
      • Retire Before Dad says

        April 17, 2014 at 7:12 am

        DL,
        Thanks for your input. I need autopilot to build some of my positions over time. Automation and dollar cost averaging are a good strategy for someone like me who can’t focus on investing all the time. When I see good value in other stocks, I still buy in my taxable account. But a company like PG I am very comfortable deploying this strategy as its history and strong brand suggest dividend increases and consistent earnings growth.
        -RBD

        Reply

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