When it comes to consumer goods some items are an absolute-must, take shampoo or soap for instance, and some are discretionary, maybe the bag of chips that’s an impulse purchase. Procter & Gamble tends to serve both markets but non-discretionary is their bread and butter.
Staples had a good run last year, although growth stocks undoubtedly overshadowed them. Still, the run in this category last year looked better than 2023, which was undtoubtedly a harsh year. That was when mega-cap growth names took the shine out of them and still-high interest rates were weighing them down.
The dividend names that are characteristic of the sector are often viewed as a proxy for bonds and so heavily affect by what the Fed does.
Adding to the woes, there were also concerns that weight loss drugs like Ozempic might reduce the consumption of some food and beverage items.
Although the sector has overcome those concerns, a lingering worry is that the Trump administration’s tariffs might be a headwind going forward. Still, staples are typically fairly immune to the whims of markets or even policies by different administrations, and therein lies their appeal.
Procter & Gamble (NYSE:PG) is essentially a consumer staples giant that has been a longstanding operating goliath (we all know the Gilette, Tide, and Pepto Bismol owner).
But it’s gargantuan reach doesn’t necessarily translate to a fast-moving share price. Nonetheless, over the past five years, Procter & Gamble’s stock has gained just over 30% and the past year has resulted in a marginal decline.
Even after the so-so share price action, the company’s stock doesn’t exactly come cheap and now sits at 24x forward non-GAAP earnings, which is higher than the current industry standards.
On a more positive note, the multiples are trading a bit lower than their own five-year average so what does the future hold for investors? Will P&G climb the Wall of Worry and deliver for shareholders or is a broader slowdown going to anchor the stock from leaving port?
P&G Beating On The Top Line
Management reported second quarterly results for fiscal 2025 and they were contrary to what was expected of it. Analysts were not expecting the company to hold up as strongly.
Procter & Gamble’s quarterly top line grew by 2% year-over-year to $21.88 billion. While this might look like a small increase, in absolute terms, this means that quarterly net sales grew by $441 million, a meaningful figure given the impact on the bottom line. This net sales figure was also higher than the $21.54 billion that Wall Street analysts were expecting.
Huge credit must be given to Procter & Gamble with regard to its handling of prices. The company did not resort to increasing its prices during the quarter to prop up its top line. If we consider the whole company, prices remained more or less flat while organic sales increased by 3%.
Speaking of the bottom-line, Procter & Gamble posted a $1.88 per share earnings, both on a GAAP and non-GAAP basis. On a GAAP basis, this figure showed a 34% year-over-year increase, but this did not account for the non-cash impairment of the carrying value of the Gillette intangible asset in the base year. This bottom-line figure was also higher than what analysts had jotted down in their forecasts.
Procter & Gamble Is an Income Investor’s Heaven
With a steady and longstanding dividend, Procter & Gamble is essentially the income investors’ heaven thanks largely to a record of 134 years of dividend payments. What’s even more impressive is the fact that it has grown its dividend payouts for 68 years straight. That’s a record most companies would not have.
From fiscal 2014 to fiscal 2024, its dividends have gone from $2.45 to $3.83. Procter & Gamble last declared a quarterly dividend of $1.0065 per share, which was payable to shareholders in February.
This cumulates to an annual dividend of $4.03 per share, which yields 2.3% on the current share price. The payout ratio sits at 58.84%, which is high but not high enough to make the dividend unsustainable.
How High Will PG Stock Go?
P&G stock can go as high as $178 per share according to the forecast of 26 analysts, who see fairly muted upside at this time.
The concerns now are that the company has a fairly high PE ratio relative to near-term earnings growth and so the multiples seem quite elevated, whether on an earnings or sales basis.
Yes, the 2.3% dividend yield is attractive but with a PEG north of 5 and trading at 8x book value, there are reasons to be concerned about the upside reward relative to the downside risk for the consumer staple.
The company currently considers itself to be on its prescribed growth track, but it might not be enough to ignite the stock to reach astronomical heights at the moment. However, seeing Procter & Gamble’s financial consistency and dividend stability, we think it might be sought after by income investors.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.
