Latest / Dividend Investing with Fexingo: Income Stocks, Yield, and Long-Term Cash Flow Portfolios / How Procter and Gamble Proves Dividend Growth Beats Yield
Transcript
- Lucas: Procter & Gamble is up three and a half percent in the past five trading days. That is not a typo, and it is not a flash in the pan. Luna: Three and a half percent in a week — that's more than the S&P 500 did, which is up one point two percent over the same stretch. Lucas: Right. And the thing is, P&G is not a high-yield stock. It yields about two point four percent right now. Compare that to Altria, which yields over seven percent but is down one point seven percent in the same five days. The narrative that yield is everything — it's just not holding up this month. Luna: So you're saying investors are rewarding growth in the dividend, not just the size of the check. Lucas: Exactly. And this is something we've seen in a few episodes, but today I want to drill into the specific math behind why a lower-yielding growing dividend beats a static high yield over time, especially in a flat-rate environment like we have now. Luna: Before we go deep — a couple of dollars a month is genuinely what keeps these conversations going. If our money talks have helped you think about a decision differently, buy me a coffee dot com slash fexingo. It's that simple. Lucas: Yeah, honestly, listener support is what keeps this ad-free and focused on the numbers. So thank you to anyone who chips in. Luna: Alright, back to it. So what's the math look like for P&G versus, say, Altria over a ten-year horizon? Lucas: Let's run it. P&G has grown its dividend at about six percent compound annual growth rate over the past decade. Altria's growth has been more erratic — they've actually cut or paused growth in some years due to regulatory pressure and declining cigarette volumes. Luna: So starting with a hundred thousand dollars in each, what do you get? Lucas: Year one, Altria pays you about seven thousand dollars in dividends. P&G pays you about two thousand four hundred. Big gap. But by year seven, P&G's dividend has grown to around three thousand six hundred, while Altria's has maybe crept to seven thousand five hundred — if you're lucky and they didn't cut. Luna: So the gap narrows, but Altria still pays more cash. Lucas: It does. But here's the part people miss: total return. Over ten years, P&G's stock price has appreciated at a compound annual growth rate of about nine percent, while Altria's has been flat to down. So your hundred thousand in P&G becomes about two hundred thirty-seven thousand in total value, while Altria might be around a hundred forty thousand — even with higher income. The total return gap is massive. Luna: And that's because the market prices in the sustainability of the dividend. Lucas: Exactly. P&G sells toothpaste and laundry detergent — stuff people buy in good times and bad. Altria sells cigarettes, which are in secular decline. The market looks at that and says, 'I'll pay a premium for the safety of P&G's payout.' And that premium shows up in the stock price. Luna: What about the current yield curve? The ten-year Treasury is at four point five percent, the two-year at four point zero one percent. So the spread is forty-eight basis points — still positive but narrowing. Lucas: Right. And that's actually a supportive environment for dividend growth stocks. When the yield curve is positively sloped but not steep, it usually means the economy is growing modestly, not overheating. That's exactly the kind of backdrop where consumer staples companies can pass through price increases and keep growing earnings. Luna: So P&G can raise prices without losing customers because they have pricing power. Lucas: That's the moat. And it's why their dividend growth is reliable. They've increased the dividend for sixty-eight consecutive years. That's a Dividend King. Altria has a long streak too, but the growth rate has slowed, and the business is under structural pressure. Luna: One thing I noticed: Procter & Gamble's stock is up three and a half percent in five days, but the broader market is also doing well. The Dow is above fifty thousand, the S&P 500 is at seven thousand five hundred twenty. Is this a rotation into quality? Lucas: I think so. When the market hits new highs — and the Dow closed at fifty thousand six hundred forty-four — investors start getting nervous about overvaluation. They rotate into stocks with predictable earnings and strong balance sheets. P&G fits that perfectly. Luna: And it's not just P&G. Johnson & Johnson is up one point four percent in five days, Coca-Cola up a tenth of a percent. Not as dramatic, but steady. Lucas: J&J yields about three percent, and they've grown the dividend for sixty-something years too. The pattern is the same: reliable growth, not just high yield. The market is rewarding that right now. Luna: So what's the takeaway for someone building a dividend portfolio in late May 2026? Lucas: Don't chase yield blindly. Look at the dividend growth rate and the payout ratio. P&G's payout ratio is around sixty percent — that leaves plenty of room for future increases. Altria's payout ratio is over eighty percent, which is risky if earnings dip. A stock with a lower yield but a lower payout ratio and a strong history of growth will likely give you better total return over time. Luna: And if you need current income, you can always supplement with bonds or a dividend ETF like VYM or SCHD, which are both up about one percent this week. Lucas: Exactly. VYM yields around two point eight percent and holds a diversified basket of dividend payers. But even there, the underlying holdings tend to be companies with growing dividends, not just static high yielders. Luna: So the lesson is: dividend growth, not just dividend yield, is the key to long-term wealth in an income portfolio. Lucas: That's the episode in one sentence. And with the Fed holding rates steady — the effective federal funds rate is still at three point six four percent — there's no urgency to reach for yield. Patience and quality win. Luna: Alright, Lucas. Great breakdown. I'm going to look at my own portfolio and see if I've been too focused on yield. Lucas: It's worth the exercise. Thanks for listening, everyone.