This Dividend Aristocrat Just Got a Lot More Interesting

Despite being the biggest player in the consumer products space, with a $225 billion market cap, Procter & Gamble (NYSE: PG) has been one of the worst performers. In fact, it’s more of a perennial underperformer.procter-&-gamble-logo

Stacked up against major peers – including Unilever (NYSE: UN), Colgate-Palmolive (NYSE: CL), Kimberly-Clark (NYSE: KMB) and Estee Lauder (NYSE: EL) – P&G has underperformed all of those companies over the last five- and 10-year periods.

That’s pretty disappointing, considering nearly all of us use at least one of P&G’s products every day. The issue has been that P&G got a bit too aggressive in launching products and expanding into new markets.

At some point, it becomes very uneconomical to manage a business generating $82 billion in revenue a year across several hundred brands in 80 countries.

So what could finally turn around this massive ship?

Firstly, it’s already been working on restructuring its product portfolio, which includes selling its Duracell battery business to Warren Buffett.

But now it’s looking at a sale or IPO of its beauty brands portfolio. This includes brands like Herbal Essence and Covergirl.

P&G will keep its largest beauty brands, Pantene and Olay – both of which are market share leaders but could use more management focus. For example, Olay has been so focused on anti-aging that it’s missed out on the market growth in areas like hydrating moisturizer.

The entire beauty business accounts for nearly a quarter of P&G’s revenues, making it one of its biggest businesses. But there’s been little to no growth in this business since 2010.

The baby and feminine care business also generates about a quarter of P&G’s revenues, with fabric and home products being its largest business, generating just over 30% of revenues.

If P&G does manage to shed its beauty business, it will be left with a stable of household and “must-have” products. It’s a big ship to turn around, but it’s encouraging that P&G is getting more aggressive.

P&G has also been making progress in boosting margins, but currency headwinds are overshadowing that part of the story. It’s had a $10 billion cost-cutting program in place for a couple years, which aims to slim its workforce and cut raw material prices.

Even with a slimmer portfolio of brands, it will still have plenty of clout with retailers, especially as it focuses on traffic-driving products like diapers and laundry detergent. Don’t forget, it has over 20 brands that each generate more than $1 billion in revenue a year.

And one area P&G won’t disappoint is with dividends. Its $2.57 annual payout offers a 3.1% dividend yield, and the dividend aristocrat has upped its payment for 58 straight years.

What’s more, there is a precedent when it comes to breaking up big consumer products businesses. Some of the biggest consumer staple companies have been slimming down their portfolios, and their stock prices have benefited.

In December of last year, Unilever announced it was creating a standalone business for its North American and European spreads business, prompting speculation that it could be looking to spin off that segment. Needless to say, Unilever has outperformed the major consumer goods peers since then.

Then there’s one of the biggest announcements of late. During the second quarter of last year, Energizer Holdings (NYSE: ENR) announced it would split itself into two companies: one for personal care products, and another for household products. Shares jumped 15% on the day it announced the split. And shares are now up over 45% for the last 12 months.

In the end, this is a new and determined P&G, with a strategy of cutting the fat. I think it’s a positive to focus on household products that people will buy regardless of the economic backdrop, while dropping products that rely more on discretionary spending.

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Published by Wyatt Investment Research at