Procter & Gamble Co: A Crash-Proof Dividend Stock?
PG Stock Deserves Investors’ Attention Now
If you read MarketWatch or Yahoo! Finance, you’ll likely have noticed that in recent weeks, there has been a lot of commentary about how bad the next economic downturn could be. And frankly, it’s the right time to be concerned.
Around this time last year, the U.S. stock market was having a serious sell-off. And since valuations still look bloated, the next pullback could be a big one.
But not every company gets hit the same way under such scenario. For instance, in a marketwide sell-off, there has been a tendency for investors to first unload the most volatile tickers, such as tech stocks.
Meanwhile, as investors go from “risk-on” to “risk-off,” established companies in defensive industries tend to outperform.
And that’s why for risk-averse income investors, Procter & Gamble Co (NYSE:PG) deserves a serious look right now.
Procter & Gamble is in the consumer staples business, meaning it makes products that people tend to buy regardless of economic conditions.
To give you an idea, P&G’s product portfolio includes many brands that have become household names, such as “Tide,” “Downy,” “Pampers,” “Head & Shoulders,” “Febreze,” and “Gillette.” These are things that consumers buy out of necessity. As a result, Procter & Gamble is essentially running a recession-proof business.
As I said, when the stock market takes a tumble and people are panicking, defensive stocks could outperform. Just take a look at what happened to Procter & Gamble stock during the last sell-off and you’ll see what I mean.
The fourth quarter of 2018 was pretty harsh for U.S. equities, with the S&P 500 index plunging 14%. Yet, during the same period, PG stock surged 10.4%.
Beating the benchmark through share-price performance in a stock-market downturn is certainly nice, but that’s not the only reason to check out Procter & Gamble stock. Just like any other ticker, P&G can have its ups and downs, and no one can predict stock-price movements with uncertainty.
The more important reason I’m digging this consumer staples company is that, even when Procter & Gamble’s share price takes a hit, its increasing stream of dividends can still provide income investors with a peace of mind.
Giving Investors a Peace of Mind
You see, because Procter & Gamble Co has been around for well over a century and is deeply entrenched in the consumer staples business, the company can afford to return cash to investors through dividends on a regular basis. And over time, those payouts have been going up.
In fact, the board of directors of Procter & Gamble has increased the company’s dividend every year for 63 consecutive years.
Looking further back, you’ll see that P&G has been paying uninterrupted dividends since its incorporation in 1890. When it comes to serving income investors, few companies have done a better job than Procter & Gamble. (Source: “Splits & Dividend History,” Procter & Gamble Co, last accessed October 25, 2019.)
And based on what the company has been doing lately, I believe PG stock will have no problem continuing its track record.
Procter & Gamble recently reported its financial results for the first quarter of its fiscal-year 2020, which ended September 30, 2019. During the quarter, the company’s net sales grew seven percent year-over-year to $17.8 billion. (Source: “P&G Announces Fiscal Year 2020 First Quarter Results,” Procter & Gamble Co, October 22, 2019.)
Excluding the impact from acquisitions, divestitures, and exchange-rate fluctuations, Procter & Gamble’s organic sales rose by seven percent in the quarter, driven by volume, pricing, and mix. Notably, all 10 of the company’s 10 global categories delivered organic sales growth.
The bottom-line number was even more impressive. Excluding non-recurring items, Procter & Gamble’s core earnings came in at $1.37 per share, up 22% from the year-ago period. On a currency-neutral basis, the company’s core earnings per share improved 24% year-over-year.
As you’d expect from a dividend giant, P&G has been returning a lot of cash to investors. In just the September quarter, the company paid $1.9 billion in dividends to its shareholders.
And that’s not all, as Procter & Gamble also returns cash to investors through share repurchases. During the quarter, the company spent $3.0 billion buying back its own shares. This reduced the number of shares outstanding, allowing each remaining Procter & Gamble stock investor to own a slightly larger portion of the company.
Seeing the solid start in the fiscal year, management is raising their guidance. For full-year fiscal 2020, they expect Procter & Gamble’s organic sales to increase by three to five percent, up from their previous guidance range of three to four percent. (Source: “Earnings Release Q1 FY 2020,” Procter & Gamble Co, October 22, 2019.)
At the same time, they raised their fiscal 2020 core earnings-per-share growth projection from a range of four to nine percent to a range of five to 10 percent.
Better yet, Procter & Gamble plans to pay more than $7.5 billion in dividends and spend $6.0 to $8.0 billion on share buybacks in its current fiscal year.
Bottom Line on Procter & Gamble Co
Trading at $124.24 per share, PG stock offers an annual dividend yield of 2.4%.
Keep in mind that investors can expect to receive the company’s dividend payments no matter what happens to its stock price. Going forward, those payments will likely keep on increasing.
As it stands, Procter & Gamble Co looks like a great recession-proof income stock.