Three Compelling Reasons to Invest in Procter & Gamble Stock

Three Compelling Reasons to Invest in Procter & Gamble Stock

Does your portfolio need more exposure to the relatively safe consumer staples sector? What about dividend income? Maybe you’re even considering taking a stake in The Procter & Gamble Company (NYSE:PG) but I can’t convince you to take the plunge. This is certainly understandable. The stock isn’t cheap right now, and it’s not like there are a ton of growth opportunities for this already huge company.

Just be careful not to talk yourself out of a great stock pick. There are plenty of good reasons to get into P&G right now. Here are my top three.

1. It offers several leading products in their category

Being a leader in market share does not automatically mean the company’s stock is a buy. On the other hand, a category leader is usually a category leader for good reason. This is why the product is top quality and the company behind it knows exactly how to market it.

To this end, please note that P&G has the leading brand in several different categories of consumer goods. It makes many products you’re probably familiar with, from Pampers diapers and Tide laundry detergent to Gillette razors and Crest toothpaste, just to name a few. About a dozen of its brands are, at any time and by far, leaders in terms of market share in the United States.

Its Bounty paper towels, for example, generate annual sales around five times that of its closest rival. Same for Gillette. P&G even dominates the crowded laundry detergent market, with Tide products outselling the second-largest national competitor by a ratio of four to one. Connect the dots: P&G is clearly doing something right.

As we’ve pointed out, being a leader in multiple markets doesn’t necessarily mean shares of the company behind these flagship products are a buy. In reality, it is difficult to topple a category leader, if for no other reason than buying these companies’ products, which eventually becomes a reckless habit.

In P&G’s case, this habit is further fueled by approximately $2 billion in annual brand “superiority” research and development, allowing the company to avoid entering a price war that no fighter never really wins. That’s a huge advantage, and a big part of the reason P&G has been able to break through throughout the market. recent wave of inflationary pressures.

2. Size matters

Larger size can be a disadvantage if a company does not deliberately manage the complexity and bureaucracy that often materializes with size. But P&G manages its weight quite well. The company evaluates and restructures regularly as necessary, getting rid of the unforeseen overhead that so easily accumulates when a large company isn’t looking.

However, the company retains all the advantages associated with larger size. Let’s take your marketing budget as an example. P&G is often the world’s largest advertiser in terms of total advertising spend, spending on the order of $8 billion annually on television, print, digital and in-store promotional activities. Smaller rivals like Clorox And Unilever I just can’t keep up.

The competitive advantage that comes from sheer size doesn’t stop there. With a broader range of market-leading products, P&G also benefits from significant leverage with its retail partners like Walmart And Hooks. This often leads to significant placement of its products in stores as well as co-advertising expenses, to name just a few benefits.

And yet P&G can still pay more than its competitors would find harder to do. For example, the company has made major investments in artificial intelligence, which is used in a variety of ways, such as more efficient manufacturing and even more effective advertising.

3. P&G has an exceptional dividend pedigree

Last but not least, interested investors can expect P&G to remain the dividend heavyweight that it currently is. P&G hasn’t just been paying steady dividends for several decades. As of this year, the company has increased its annual payout for 67 consecutive years. As one of the longest-running dividend growth companies in the market, P&G is going to do everything in its power to maintain this unbroken streak of increasing annual dividend payments.

Perhaps more important than P&G’s dividend history is the fact that the company can afford to pay these dividends without compromising its ability to invest in its own growth. For its 2023 fiscal year, which ended in June last year, P&G reported earnings of $5.90 per share and paid dividends of just under $3.68. This 62% dividend payout ratio leaves enough profit to give P&G some budgetary flexibility or even fund share buybacks.

Newcomers will currently buy P&G stock when the dividend yield is a respectable 2.3%. For perspective, the S&P500The current dividend yield stands at 1.35%.

Weigh the pros and cons

There are also downsides to owning a stake in P&G. His lack of growth is a major problem. The expected revenue growth of 3.4% for this year and the equally modest projection of 3.9% for next year are actually the long-term norm in this area; you can definitely find faster growing prospects. This stock isn’t exactly cheap either, with its price being 25 times this year’s projected earnings per share.

Just keep the big picture in mind. Investors can expect – and should be willing – to pay a premium for a reliable, quality pick and a strong dividend payer. Procter & Gamble might just be what your wallet needs right now.

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James Brumley has no position in any of the stocks mentioned. The Motley Fool posts and recommends Target. The Motley Fool recommends Kroger and Unilever Plc. The Motley Fool has a disclosure policy.

3 Reasons to Buy Procter & Gamble Stock Like There’s No Tomorrow was originally published by The Motley Fool

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