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?

Is Procter & Gamble a Safe Stock for Turbulent Times?

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.

Procter & Gamble Enjoys Pricing Power

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.

How Much Upside Does Procter & Gamble Offer?

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.

Is P&G Trading At A Premium?

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.

Is Procter & Gamble a Buy?

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.

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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.