TAKING STOCK: Procter and Gamble

Dear Mr. Berko: We've never been in the stock market but are comfortably retired for 11 years. We only own CDs, government bonds and annuities because we don't like to take chances. Both our pensions are annuities. We read your column on how impossible it was to buy savings bonds and tried, but it was frustrating, so we gave up. We want to gift $3,000 to our 4-month-old grandson. Since it's too difficult for us to buy savings bonds, it's a choice between Procter & Gamble, a big company we drive by almost daily, or a mutual fund. Which would you recommend, and if you tell us a mutual fund, could you please suggest a name you like? HW in Cincinnati, Ohio. Dear HW: Procter & Gamble (PG-$62) is as American as Motherhood, apple pie, nighttime baseball and Norman Rockwell. Back around 1828, Billy Procter, a candle maker from England, and Jimmy Gamble, a soap maker from Ireland, emigrated to the U.S., settled in Cincinnati and became brother-in-laws via a double ring ceremony marrying the Norris sisters in 1836. A year later in 1837, they formed Procter & Gamble. By 1859, the boys' revenues exceeded $1 million with 82 employees and 20,000 square feet of plant space. In 1887, P&G came public and began to market a new soap that floated on water called Ivory to describe its color. And thus emerged an icon of America, one of the most successful, most recognized and most respected companies in the world. Today P&G has $85 billion in revenues and a fund manager who has owned P&G in his portfolio for years. This tells me that $10,000 invested in this stock 100 years ago would be worth over $150 million today if all dividends were reinvested. Now that's a fine long-term investment. Today P&G has 11 brands, each producing over $1 billion in annual revenues, including Liquid Tide, which is now the drug currency "de jour" in many nations around the world. Pringles, another $1 billion plus product, was recently sold to Kellogg for $2.7 billion. Other billion dollar brands are: Crest, Charmin, Pampers, Duracell, Bounty, Gain, Iams, Ace, Downy and Febreze. These products and Mr. Clean, Tampax, Joy, Nyquil, Prolosec, Vicks, Metamucil, to name a few, are in nearly every hacienda, home, castle and chateau in the world. And prior to splitting 2 for 1 in 2004 (five previous 2 for 1 split since 1969), the stock hasn't done didly squat. But its astounding revenue growth is a marvel, and its dazzling, 9.5 percent annual dividend growth since 1957 would knock your socks off. P&G doesn't make exciting, high tech, fast lane, colorful products that tantalize the breathless and restless. Its stock doesn't appeal to rah-rah, go-go traders, the pump 'em and dump' em hedge fund or Wall Street's ubiquitous rumor mongers. But P&G, which has traded between $40 and $75 in the last decade, appeals to long term, serious growth and income investors who can ignore Wall Street's viral pathologies. I think the future performance of PG can imitate the past. P&G products are part of the world' natural rhythm, like breathing in and breathing out. P&G's masterful R&D constantly seeks opportunity to upgrade products, and its nonpareil marketing is backed by hundreds of millions of dollars that it effectively uses for media advertising. So the Street believes P&G's revenues will exceed $100 billion by 2016/2017. Meanwhile, their green-eye shade bean-counters have done a yeoman's job of managing costs without infecting revenues. And proof of this pudding is P&G's net profit margins, which a decade ago were 12.5 percent and today are at 14.5 percent and should rise to 17 percent during the next few years. So that 17 percent on $100 million in revenues translates to $17 billion in net income by 2016/17 plus a dividend, probably in excess of $3.25 a share. Certainly a sweet increase from today's $2.25 yielding 3.5 percent. PG's financial strength is glit-edged at A++, and in a heartbeat, I'd recommend the stock and sign up for dividend reinvestment. Then if P&G performs in the future as it has in the past, this $3,000 could grow to $50 million when your grandson is 100 years and 4 months old. ---------- Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at mjberko@yahoo.com. Visit Creators Syndicate website at www.creators.com. © 2012 Creators Syndicate Inc. Published: Fri, Jun 8, 2012