Saturday, May 1, 2010

RRSP Purchase: Procter & Gamble

This week, I added to my current position in Procter & Gamble (NYSE: PG) within my RRSP, doubling my ownership in the company from 50 to 100 shares. My initial position was purchased in June 2009 for $52.50 per share, while my resent purchase was at $62 (both prices are in USD). Because of the 10% rise in the CAD vs the USD, however, the difference in the prices between my initial and my new purchases is only about half of what it is in USD.

Why did I add to my stake in the company? It had just reported its 3rd-quarter results, and the earnings per share were down by a minuscule $0.01 from last year's ($0.83 vs $0.84). Sales rose, but so did expenses (notably in the form of marketing and taxes). And there was a charge due to retiree health-care payments. The stock took a dive, going down by 2-3% on the news.

One has to wonder where have those sellers been living for the last year, to react so drastically to the news. The company has repeatedly said that it was ramping up marketing and adjusting product mix to recapture customers that moved to lower-priced products during the recession. To me, such a small decrease in EPS is quite a feat from the company.

On top of that, the commpany has announced a 9.5% dividend increase just a week ago. Although a dividend increase is not a reason to purchase a company, it does show that management is confident that things are on track. Furthermore, the dividend is quite secure with a reasonable 58% payout ratio.

So, for me this was a classical "buy on a pull back" situation. I expect to hold my shares for a long time, enjoying my dividend increases for years.

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