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Procter & Gamble Co. (PG) has had a tough run over the last year. Downward pressure on the consumer discretionary sector helped keep PG stock gains subdued and shares have underperformed the market over the last year.
However, the firm’s most recent earnings report suggests that Procter & Gamble has made large strides and that business is picking up speed.
While it has had a sluggish few months, long-term investors should see the company’s shortcomings as a strength because PG stock largely missed out on the Trump rally, making it a less expensive pick than some of its peers right now.
Prices and data are from the original InvestorPlace story published on February 14, 2017. Click on ticker-symbol links in each slide for current prices and more.
By Laura Hoy
| February 2017
This slide show is from InvestorPlace, not the Kiplinger editorial staff.
Courtesy Procter & Gamble
One of the reasons Procter & Gamble is a good buy is that the company’s most recent earnings report paints an encouraging picture of the firm’s forward progress. At first glance, the company’s sales figures looked lackluster, but once factors like foreign exchange rates, acquisitions and divestitures were taken out, organic sales increased by 2% from the previous year.
Not only that, but the firm beat analysts’ earnings-per-share expectations for the fourth consecutive quarter. P&G management said they expect to see organic sales and core earnings to continue to increase in the coming year as well.
Management said it sees its core earnings improving by about 5% each year, and so far PG stock looks on track to meet or even exceed that goal. This is great news for shareholders because it means the firm is likely to keep its promise to reward shareholders in a big way over the next few years.
In 2017, shareholders are due to receive some $22 billion from Procter & Gamble. The firm plans to return that money to shareholders through stock repurchases as well as dividend hikes. At the moment, PG stock offers a 3% dividend yield, which is much higher than the average S&P 500 company pays out. Plus, most are expecting P&G’s dividend to increase substantially in the coming year after last year’s disappointing 1% hike.
The firm has proven to be a reliable source of income for investors by consistently paying out dividends since 1890. The firm has also raised its payout every year for the past 60, so traders can be confident that they will see annual income from P&G stock.
While the consumer discretionary sector has taken a bit of a hit in recent months as economic uncertainty caused a pullback in spending, Procter & Gamble’s core business is very secure should a recession hit. Under the PG umbrella are brands like Tide and Pampers, which are necessities that will still be in demand even if consumers continue to tighten their spending.
Not only that, but P&G’s diversified portfolio of products keeps the firm from being overexposed to too much volatility in one segment. In response to calls that the company was getting too big to manage, the firm has been thinning out its portfolio and has dropped more than 100 brands over the last few years in an effort to focus on increasing profits in its most promising businesses. However, Procter & Gamble still maintains 23 different brands that operate across a variety of products and each generates more than $1 billion in annual sales.
PG stock has been undergoing a bit of a transformation over the last two years as the company sold off some of its brands and implemented cost-cutting measures. P&G is vulnerable to foreign currency swings as the firm operates in 180 different countries.
These factors have weighed on PG stock’s share price and kept it from rising alongside the broader market over the past year. However, long-term investors can buy shares of Procter & Gamble now as the firm is poised to make its comeback during 2017. Not only that, but the company’s dividend payouts and promise to return $22 billion to shareholders will make the wait for a turnaround much easier to bear.
This article is by Laura Hoy of InvestorPlace. As of this writing she held none of the aforementioned securities.
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