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Is Procter & Gamble Stock Seeing a Repeat of History

Posted on Tuesday, November 26th, 2019 by Chris Markoch

Is Procter & Gamble Stock Seeing a Repeat of History

Procter & Gamble stock (NYSE:PG) is up over 24% in 2019. One reason for investor optimism is that at several points this year, the stock has used a prior level of support to propel the stock to higher highs.

That same scenario seems to be playing out right now. After a post-earnings spike, PG stock has dipped nearly 4% but the stock is finding support around $120 and a look at the stock chart should give investors reason to believe the stock is gathering steam for another leg up.

Why is PG stock rising?

Procter & Gamble is enjoying several quarters of organic growth. In 2019, organic sales have grown from 4% in the first quarter of fiscal 2019 to 7% in the most recent quarter. What is even more encouraging for investors is that in addition to selling more products, the company has been able to make price increases on some of their most popular, higher-priced products such as Olay skin brands and premium Crest toothpaste. When investors are looking for sustained growth, they want to see both volume and price increases.

P&G Chief Financial Officer Jon Moeller confirmed the growth in the conference call for the earnings report. “We’ve focused and strengthened our portfolio in daily use categories where performance drives brand choice in categories where we occupy a number one or number two position, which have historically grown faster than the balance of the company and are more profitable”.

This organic growth is proof that the company’s strategy to pay attention to both top- and bottom-line growth is working. To that end, the company is not in the process of cutting $10 billion of costs out of operations. This is helping the company deliver exceptional value to shareholders. The company is increasing its market share through strong sales. On the other hand, they are increasing their margins and increasing their free cash flow.

China right now is more reward than risk

While many companies have been stuck in neutral because of the trade war, P&G has remained largely unfazed. Only about 9% of their total sales come from China. However, if the trade war does reach a resolution, even if it is only of the phase one variety, it would open up a market that could be a further catalyst for growth.

P&G is also a great stock for income investors

Simply put, PG stock is about as sure a thing as investors can get. It’s one of the bluest of the blue-chip stocks. And like many blue-chip stocks, Procter& Gamble pays out a reliable dividend that makes it a solid choice for income-oriented investors. In April, PG raised its dividend for the 63rd consecutive year. That puts them in the elite Dividend King category. These are companies that have raised their dividends for over 50 years. The annual dividend for PG stock shareholders is $2.98 per share. The company has a current dividend yield of 2.48%. And the payout ratio for Procter & Gamble is just below 66%.

P&G expects to deliver between $13.5 billion and $15.5 billion to shareholders in their fiscal 2020 year (which ends in June). Of that total, the company is projecting to payout $7.5 billion in dividends and between $6 and $8 billion in share repurchases.

So what are the risks for PG stock?

As I see it, there are two risks as we enter 2020. The first is simply elevated expectations. Investors are getting accustomed to Procter & Gamble beating expectations on both the top and bottom lines. If they slip up, even a little, it could have a negative impact on the stock. The consumer durables category is a tough sector that is not known for the kind of growth investors are getting from PG stock.

The second risk comes from a recession. Many economists are now downplaying the risk of a recession. The Federal Reserve seems poised to lower interest rates on any sign of weakening. And you know that, in an election year, the current administration will pull every lever necessary to keep the economy from slowing down. Nevertheless, a recession is never officially announced until the economy is already in one. If the economy begins to slow it’s unclear if P&G will be able to maintain its strategy of raising prices.

The bottom line on PG stock

Procter & Gamble may be acting as a high flier, but it is first and foremost a conservative, blue-chip stock. It will not be as nimble as some other stocks, but it also is in a sector where disruption happens a bit more slowly.

I like PG stock now because it looks fairly valued and as long as the economy stays healthy, it should continue to provide the top- and bottom-line growth to push the stock higher. And with a solid dividend, it’s a win-win for both growth and income investors.

Companies Mentioned in This Article

CompanyCurrent PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Procter & Gamble (PG)$125.47flat2.38%27.76Hold$118.53

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