You would expect most slow-growing companies, especially those as big as Procter & Gamble, to be returning their free cash flows to shareholders. Unless a firm has explosive growth opportunities--and it's usually a good bet that a slow-growing company has few--the best place to park excess cash is in shareholders' pockets.
Indeed, Procter & Gamble does pay out a significant chunk of its earnings as dividends. In 1999, the company paid about $0.40 in dividends for every $1.00 of earnings. Better still, P&G has increased its dividends in each of the past five years, in tandem with its earnings growth. Such dividend staying power is what you hope to see in a slow grower. P&G has also been buying back its own stock, about 1% of it each year since 1996, which is another way to return money to owners.
What's the Return on Capital? >>