Procter and Gamble (NYSE: PG) operates around 160 brands. From Old Spice deodorant to Downy paper towels and Duracell batteries, the company’s brand portfolio is extensive.

The company announced at the beginning of this month that it would split off half of its brands. Splitting off strong brands that are outside of the core of P&G’s brand portfolio could unlock tremendous value for shareholders.

So should you buy the Procter and Gamble stock split?

This isn’t the first time that a major company has split off a large number of brands and there are several ways in which P&G can accomplish its goal.

procter-and-gamble-stock

Source: Insights in Retail

Kraft Foods (Nasdaq: KRFT) split off many of its faster growing and international brands in October 2012. The spinoff formed a new company, Mondelez (Nasdaq: MDLZ).

The plan with the Procter and Gamble stock split is to sell off certain non-core brands individually or in groups rather than spin them off as a separate company.

This is not all that different from Procter & Gamble’s April sale of its pet food brands – including Iams and Eukanuba – to privately held Mars Inc, best known for its M&M candies. Mars paid $2.9 billion to P&G as part of the deal.

At the time of the sale P&G CEO A.G. Lafley said that “exiting pet care is an important step in our strategy to focus P&G’s portfolio on the core business where we can create the most value for consumers and shareholders.”

So his announcement last week that Procter and Gamble would split off many of its brands to focus on a core brand portfolio shouldn’t have come as a total surprise.

The real question is whether or not such a move makes sense and whether you should buy Procter and Gamble stock based on this move.

With a market capitalization around $220 billion Proctor and Gamble is the largest publicly traded personal products company in the world. Its global reach has allowed it to grow into a huge company, one of the 20 largest publicly traded companies in the US. But with its size comes new issues.

In its recent earnings report the company reported organic sales growth of 3%. But the CEO also said organic sales would’ve been 4% if P&G had already split off the brands it intends to sell.

Essentially P&G’s “extra” brands are holding back its performance.

The CEO also said that the company’s top 70 to 80 brands – the brands it intends to keep – generate 90% of P&G’s sales and 95% of its profits.

Not only will selling off extra brands result in immediate cash flows but it will also enable the company to focus its marketing and manufacturing efforts on the brands that generate almost all of its sales.

From my way of thinking, a stable company paying more than 3% in dividends that is refocusing on its core brands and generating cash flows by selling its extra brands is a winning combination.

The Proctor and Gamble stock split seems like an excellent opportunity to pick up shares of this consistent dividend champion.

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Published by Wyatt Investment Research at