Here in Drip Land, we like to research stable, well-known companies. They don't have to be in exciting industries, produce cutting-edge technology, or be discussed at cocktail parties.

(I have never been to a cocktail party, by the way, nor do I know anyone who has. In fact, I question whether they really exist. Like the story about organ thieves stealing kidneys from drunk people, they're probably just an urban legend. )

Whether dull or exciting, though, we want to make sure any company we buy will be around for a long, long time. After all, we plan to drip our hard-earned dollars into the stock over a period of many years.

That sets the stage for my initial interest in Procter & Gamble (NYSE: PG). Originally established as a soap and candle maker in 1837, it has grown into a $100 billion behemoth. It markets 250 products to 130 countries, with almost half its revenue coming from outside the U.S.

You no doubt have many P&G brands in your home: Tide, Cheer, Bounce, Olay, Cover Girl, Clairol, Luvs, Pampers, Cascade, Joy, Mr. Clean, Folgers, Head & Shoulders, Iams, and Puffs, just to name a few. Yes, you can eat Pringles and drink Sunny Delight, take care of the resulting stomachache with Pepto-Bismol, brush your teeth with Crest, and then top it all off with Scope... and P&G would be delighted.

If you want further proof of the company's stability, consider that Value Line assigns it its highest safety ranking ("1"),which is based on financial strength and price stability. Although there are no absolutes in the business world, it's probably a safe bet that this 166-year-old company will be around for a long time to come.

Cash, debt, and Clairol
You need more than stability to generate shareholder value, of course. Luckily, P&G's business is rolling along smoothly these days. Now emerging from a major restructuring and cost-cutting campaign, the stock has gained about 10% over the past year. That's a strong showing, especially when compared to the S&P 500's 22% loss.

Are investors reacting to an improving financial position? Let's take a look. Last week, Jeff Fischer (TMF Jeff) ran McDonald's (NYSE: MCD) through the paces, and we'll do the same with P&G. First, a look at operating cash flow (OCF) and free cash flow (FCF) for the past six years:

Fiscal     OCF          FCF
1997     $5,882       $3,753
1998      4,885        2,326
1999      5,544        2,716
2000      4,675        1,657
2001      5,804        3,318
2002      7,742        6,290
(in millions)

While P&G's numbers are not nearly as erratic as McDonald's, they are a bit choppy. But fiscal 2002 (which ended last June) shows just how well the restructuring and cost-cutting program is paying off, with an amazing 90% jump in free cash flow.

Now we'll move on to debt and cash:

Fiscal  L.T. Debt       Cash & Equiv.
1997     $4,143            $3,110
1998      5,765             2,406
1999      6,231             2,800
2000      8,916             1,600
2001      9,792             2,518
2002     11,201             3,623
(in millions)

This table is certainly more troubling than the first. Long-term debt has risen 170% in just five years. Cash and equivalents, while up only 17% in this time frame, have at least rebounded from 2000 levels.

What are we to make of this? Is mighty P&G in any danger of collapsing under a huge debt load? In a word, not bloody likely. (OK, three words.) Value Line gives the company top marks for financial strength. Standard & Poor's debt-rating service says its diversified line of consumer products and strong international influence "should continue to provide it with a solid and consistent stream of future operating earnings and cash flow."

Also consider the company's dividend history. It has paid a dividend to investors, without fail, since it incorporated in 1890. Last July, it increased the payout for the 47th consecutive year. (The dividend yield currently stands at 1.9%.)

Finally, the debt has increased for good reason. P&G spent roughly $5 billion to acquire Clairol, and is already seeing benefits from the purchase. In an interview with a French newspaper, chief executive A.G. Lafley said he expects acquisitions to account for about one quarter of the company's long-term sales growth. Look for more expansion into the beauty and health-care sectors where, Lafley says, "We are still a relatively small player in these fast-growing businesses."

Many companies are able to use debt very effectively, and it appears P&G is one of those.

Time to buy?
I'll wrap this up with a look at some valuation metrics, and whether or not this is a good time to consider buying the stock. P&G's trailing-12-month price-to-free cash flow ratio right now stands at 17. Is this reasonable? Let's take a look at the company's P/FCF range over the past few years:

Year      P/FCF*
1997       28
1998       57
1999       47
2000       49
2001       27
2002       20
*on June 30

In this context, a P/FCF ratio of 17 obviously looks very tempting, but there's one other factor I like to consider, and that's Value Line's "Timeliness" ranking. Over the past 33 years, stocks carrying a ranking of "1" have, on average, outperformed the market by a wide margin for the 12 months after they received the ranking.

Value Line raised P&G's ranking to a "1" three months ago. Like anything else, that's just one factor to consider, but it's nice to see a stock have a top ranking for both timeliness and safety.

This company has a lot of attributes we look for in Drip candidates. It's stable, financially strong, and carries a reasonable valuation. Procter & Gamble is one we'll consider should we ever decide to add another stock to the portfolio.

Rex Moore Luvs to Cheer-fully Bounce Tide in your Pampers. He also needs a vacation. Desperately. At press time, he owned no companies mentioned in this column. You can always view his holdings, as well the Fool's disclosure policy, if you've mastered the art of clicking.