The Procter & Gamble Company (NYSE:PG) has announced that it will be increasing its periodic dividend on the 15th of May to $1.06, which will be 5.0% higher than last year's comparable payment amount of $1.01. Based on this payment, the dividend yield for the company will be 2.4%, which is fairly typical for the industry.

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Procter & Gamble's Payment Could Potentially Have Solid Earnings Coverage

We aren't too impressed by dividend yields unless they can be sustained over time. Prior to this announcement, Procter & Gamble's dividend was comfortably covered by both cash flow and earnings. This indicates that quite a large proportion of earnings is being invested back into the business.

Looking forward, earnings per share is forecast to rise by 22.4% over the next year. If the dividend continues on this path, the payout ratio could be 54% by next year, which we think can be pretty sustainable going forward.

View our latest analysis for Procter & Gamble

Procter & Gamble Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The dividend has gone from an annual total of $2.57 in 2015 to the most recent total annual payment of $4.03. This works out to be a compound annual growth rate (CAGR) of approximately 4.6% a year over that time. While the consistency in the dividend payments is impressive, we think the relatively slow rate of growth is less attractive.

The Dividend Looks Likely To Grow

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. It's encouraging to see that Procter & Gamble has been growing its earnings per share at 29% a year over the past five years. The company doesn't have any problems growing, despite returning a lot of capital to shareholders, which is a very nice combination for a dividend stock to have.

Procter & Gamble Looks Like A Great Dividend Stock

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. Earnings are easily covering distributions, and the company is generating plenty of cash. All of these factors considered, we think this has solid potential as a dividend stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 2 warning signs for Procter & Gamble that investors need to be conscious of moving forward. Is Procter & Gamble not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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