In the bustling world of Wall Street, the S&P 500 often steals the spotlight. It’s like the ultimate VIP lounge for American companies—where 500 of the country’s top-performing names, from the tech luminaries of Silicon Valley to the financial masterminds of Manhattan, gather to set the bar for market success. This index isn’t just a list; it’s a powerful mirror reflecting the pulse, vigor, and innovation of the U.S. economy.
But in this party of 500, what about the lone wolves—the individual stocks like Procter & Gamble (NYSE:PG) that aren’t just another face in the crowd? How does a tried-and-true household name stack up when you put it under the same spotlight as this financial juggernaut?
In today’s piece, we’re going to take off the gloves and pit these two against each other. We’ll dig into the dynamics, the dividends, and the data to find out whether PG is overshadowed by the S&P 500 or if it’s a scene-stealer in its own right. So grab your financial playbook, because this is one match-up you won’t want to miss.
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Investing in Procter & Gamble Alone
When considering the potential for higher returns, Procter & Gamble offers a compelling case.
For example, the company’s share price has expanded 84.0% over the last five years, a notably higher return than the S&P 500’s 52.1%. However, the famous index is already up 15.2% in 2023, when Proctor & Gamble could only deliver a 1.30% increase.
That said, over the last fiscal year (FY), P&G reported some encouraging metrics. The firm’s organic sales outperformed its own expectations with an increase of 7%, while diluted and core EPS rose 13% for the latest quarter.
Intriguingly, PG’s GAAP net sales have ticked up by 2% over the past year, which is pretty much in line with what the company forecasted. But get this: if you rule out the pesky three-point drag from foreign currency ups and downs, that growth would be on par with the 5% bump we saw last year.
But hey, going all-in with Procter & Gamble isn’t a one-way ticket to Easy Street. Case in point: the company saw a dip in sales volumes between April and June. That’s a little warning bell, ringing loud and clear about the rollercoaster ride that often comes with putting your eggs in a single-stock basket.
Looking ahead, Procter & Gamble has a sunny disposition for Fiscal Year ’24. They’re eyeing GAAP sales growth in the ballpark of 3 to 4%, and they’re expecting diluted earnings per share (EPS) to climb somewhere between 6 and 9%. Not too shabby.
Still, the stock market seems to have already baked these expectations into P&G’s stock price. The company’s forward P/E ratio is a touch high, sitting at 24.0 in the Consumer Staples sector, but it does sport a pretty nifty EBITDA margin of 26.6%.
Now, check this out: one of the heavy hitters among S&P 500 index funds, the SPDR® S&P 500 ETF Trust (SPY), has a more appealing earnings multiple at 19.7. Add to that its projected 3 to 5-year EPS growth rate of 14.0%, and a less lofty price-to-book ratio of 3.93, and you’ve got something that looks downright tempting from a valuation standpoint.
So, what’s the bottom line this year for P&G’s stock? While the company’s financials are looking up and its outlook seems bright, it might not be the go-to choice if you’re hunting for eye-popping short-term gains.
133 Years of Dividend Payments
For an astonishing 133 years, Procter & Gamble hasn’t missed a beat when it comes to dividend payments. In the world of income investing, that’s akin to having VIP status. To top it off, they’ve been raising their dividends year-over-year for 67 years. That’s enough to make them royalty, or as we like to say in the biz, a ‘Dividend King.’
Hold the confetti and champagne, though; it’s not all sunshine and rainbows. P&G’s payout ratio is hanging around a high 62.4%. Makes you wonder if they’ll continue to sprinkle us with that financial love, doesn’t it? And let’s be honest, their dividend yield at 2.45% is no head-turner. Oh, and if you’re looking at their one-year dividend growth, 4.48% won’t exactly knock your socks off.
But wait, let’s toss the SPDR® S&P 500 ETF Trust (SPY) into the mix and see what colors emerge on this financial palette. Despite a modest yield of 1.48%, this ETF has muscled up its dividend growth to an impressive 8.57% over the last year. So, if you’re thinking about dividends, know that comparing SPY to P&G is like comparing apples to…well, a whole fruit salad.
Why the mixed metaphor? Well, the S&P 500 is like a Wall Street All-Star team, with 500 of America’s corporate MVPs. Each one has its own game plan for dividends, impacted by its individual performance, the league it plays in—ahem, industry—and next season’s strategy. Making dividend predictions here is like calling the outcome of a chess game while still in the opening moves.
Let’s not forget that corporate strategy can shift like sand under your feet. Companies are constantly juggling their cash for different plays, be it merging, retiring debt, buying back shares, or reinvesting in the biz. Any zig or zag here can send ripples through your dividend stream, blurring any financial foresight you thought you had.
Yet, the S&P 500 ETF stands out for being more like a calm lake than a choppy sea. While individual stocks like P&G can give you a rollercoaster ride based on company-specific news, an S&P 500 fund offers a mellower journey. With this fund’s broad market coverage, no single company’s shenanigans will yank the rug out from under you, offering a smoother ride and more predictable dividends in the long run.
Wrap Up
The decision to select between a diversified index or a specific boils down to risk tolerance primarily. Do you want to take higher risk and bet on a single company and management team or bet on the top 500 CEOs running the largest companies in America as part of a single bet.
Any given company will exceed the returns of the index and fall short for various durations, but over the long-run it’s very difficult to beat the appeal of the index from a risk-adjusted return perspective.
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