Procter & Gamble Co: Is PG Stock Now a Must-Own for Income Investors?

PG Stock

Here’s Why Investors Should Own PG Stock

The U.S. stock market had quite a rally towards the end of the last year. But not every stock shot through the roof. For instance, Procter & Gamble Co (NYSE:PG) stock did not rise much with the market. Despite its recent climb, PG stock is still down nearly four percent since last October.

However, with its relatively subdued stock price, Procter & Gamble stock is not as bloated as many other names in the market. And for income investors, this could represent an opportunity.

PG Stock: Solid Financials

When you compare the performance of PG stock with the overall market—the S&P 500 Index climbed nearly seven percent since last October—you might get the impression that Procter & Gamble’s business is declining. But that’s not really the case.

The company reported earnings earlier this month. In the October-December quarter, Procter & Gamble generated $16.9 billion in net sales, which is unchanged compared to the year-ago period. However, excluding the impacts of acquisitions, divestitures, and foreign exchange, the company’s organic sales actually increased two percent year-over-year. The top-line number also beat Wall Street’s expectation of $16.8 billion. (Source: “P&G Announces Second Quarter Earnings,” Procter & Gamble Co, January 20, 2017.)

The bottom line was more impressive. For the quarter, PG stock delivered core earnings of $1.08 per share, a four-percent increase from the year-ago period and beating analysts’ estimate of $1.06 per share.

Of course, as a century-old company in the consumer staples industry, Procter & Gamble’s growth is probably not going to be as fast as the hot names in the tech sector. But not being a trending ticker also means expectations are not that high, which gives the company a better chance of beating them. In the past four quarters, PG stock has beaten analysts’ earnings per share estimates every single time. (Source: “The Procter & Gamble Company (PG),” Yahoo! Finance, last accessed January 27, 2017.)

Going forward, growth could continue for the consumer staples giant. Procter & Gamble expects full-year organic sales to grow two to three percent for fiscal 2017. Core earnings is expected to increase at mid-single-digit pace from the prior year.

PG Stock Provides Recession-Proof Income

Now, investors could still be wondering, “what if stock market doesn’t appreciate the growth at Procter & Gamble?” Well, if you are an income investor, you would know the answer: dividends.

Procter & Gamble stock currently pays $0.6695 per share on a quarterly basis, translating to an annual dividend yield of 3.1%. Given that the average yield of S&P 500 companies is approximately two percent at the moment, investing in PG stock today would provide a yield that’s 50% higher.

What’s more impressive is how reliable PG stock dividends are. The company’s payouts are backed by its rock-solid business. Procter & Gamble products are sold in over 180 countries around the world. It has 23 brands that each generate over $1.0 billion annual sales. Moreover, its brands like “Tide,” “Oral-B,” “Pampers,” and “Bounty” are everyday necessities, meaning its business can prosper regardless of the overall economic environment.

That’s why Procter & Gamble stock has been providing recession-proof income to shareholders for over a century; the company has paid consecutive dividends since its incorporation in 1890. Moreover, it has raised its payout in each of the past 60 years. That makes PG stock a “dividend king,” a company with at least five decades of consecutive dividend hikes. (Source: “Splits & Dividend History,” Procter & Gamble Co, last accessed January 27, 2017.)

The Bottom Line on PG Stock

As consumers, we know that high-quality items rarely get a discount. Therefore, when PG stock is having a pullback, it deserves the attention of income investors.

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