Time to Own This Billionaire’s Largest Holding?

During times of heightened market volatility, many investors go looking for oversold high-growth bargains. Billionaire investor Ray Dalio, however, seems to be taking a more conservative approach. His fund’s single largest holding at the moment is consumer staples giant Procter & Gamble (NYSE:PG). Is it worth following him if he has so much conviction in this tried and tested company?

 

One of the main reasons P&G is a go-to conservative investment is its focus on consumer hygiene and cleaning products. Consumers buy these daily essentials in all market conditions, making Procter & Gamble far less cyclical than companies producing non-essential goods.

 

P&G also enjoys a wide moat due to both scale and brand recognition. The company has spent decades building and marketing popular consumer brands. While generics have gained a foothold in recent years, there is no indication that P&G will lose its market dominance anytime soon.

Procter & Gamble is also one of America’s most prominent dividend kings. The company has raised its dividend annually for 66 years.

 

Today, the stock yields 2.59 percent, paying out $3.65 annually per share. The dividend payout ratio for Procter & Gamble currently stands at 63 percent, giving it a decent amount of room for future increases. As such, Procter & Gamble is a staple in many income-focused portfolios.

 

Together, these factors make P&G a solid protective stock that fits Ray Dalio’s investment strategy well. Dalio is known to be inflation-averse, generally seeing falling purchasing power as a major risk for investors and the economy at large. As such, a safe consumer staples stock like Procter & Gamble makes good sense as Dalio’s largest holding while inflation runs high.

 

Despite being relatively safe from economic turmoil, P&G has seen fairly anemic growth this year.

 

In the most recent quarter, the company’s net sales increased by just 1 percent year-over-year to $20.6 billion. Volumes declined modestly across Procter & Gamble’s portfolio, but this reduction in units sold was more than made up for by price increases. This pricing power is one of many positive effects on P&G’s competitive moat.

 

Earnings, however, fell by 2 percent compared to the same quarter last year. While lower than 2021, the $1.57 per share reported by P&G last quarter was still slightly above the $1.55 expected by analysts.

 

Despite a slight drop, Procter & Gamble has managed to hold its own in an extremely challenging market. Many companies have seen their earnings fall considerably this year, an outcome that P&G has largely avoided.

 

In the short term, investors may not see large returns from Procter & Gamble. The 12-month analyst price target for P&G is $145, up a mere 2.7 percent from its current price.

 

Over the long term, however, investors could see respectable returns from a combination of rising share prices and dividend increases.

 

P&G’s total shareholder return over the last five years has been about 60 percent, of which only 40 percent was a result of share price increases.

 

The remaining 20 percent came from dividend distributions, illustrating how important these payouts are to the stock’s overall performance.

 

Although Ray Dalio is clearly quite confident in P&G, the company carries at least two risks worth mentioning. The first of these is its valuation, which seems quite high for a company that has largely matured.

 

With a P/E of over 23 and a price-to-earnings-growth ratio of 3.9, Procter & Gamble trades at a premium to both its earnings and its probable future growth. It should be noted, however, that this isn’t entirely unusual for secure dividend kings. Coca-Cola (NYSE:KO), for example, carries very similar value metrics.

 

The company is also facing challenges associated with a strong US dollar. With over half of P&G’s sales coming from foreign markets, a stronger dollar puts it at a marked disadvantage.

 

While this could be a headwind that affects the company for some time, there’s little reason to believe it will derail its long-term growth capabilities.

 

Procter & Gamble stands out as a classic conservative investment. The company carries relatively low risks, but it also won’t offer massive near-term rewards to shareholders. With that said, holding P&G has been a reliable bet for decades due to its history of consistently raising its dividends and maintaining its competitive advantage.

 

Ultimately, Procter & Gamble is likely a good fit for investors who are focused on generating income from their portfolios or preserving their capital until the market stabilizes. With acceptable risks and a high probability of continuing to raise its dividend, P&G will likely appeal to most investors with low to medium risk tolerances.

 

Investors seeking rapid returns, however, may not find Procter & Gamble as appealing. The company probably isn’t poised for intense growth, and the stock isn’t meaningfully undervalued. As such, P&G’s returns are more likely to be slow and steady.

#1 Stock For The Next 7 Days

When Financhill publishes its #1 stock, listen up. After all, the #1 stock is the cream of the crop, even when markets crash.

Financhill just revealed its top stock for investors right now... so there's no better time to claim your slice of the pie.

See The #1 Stock Now >>