Procter & Gamble (NYSE:PG) is often considered a slow-growth dividend stock which is resilient during downturns but doesn't offer much upside potential. Yet the stock has rallied 15% over the past 12 months -- easily outperforming the S&P 500's 5% gain -- as investors bought "safer" income plays for a low-interest rate environment. 

That sounds logical, since P&G has hiked its payout annually for almost six decades and pays a healthy forward yield of 3.1%, which is much higher than the S&P 500's average yield of 2%. 

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However, P&G's growth and valuations indicate that the stock has gotten ahead of itself. Sales fell 8% last year but rose 2% on an organic basis, which excludes the impacts of currency headwinds, acquisitions, divestments, and other expenses. Its core EPS fell 15% as reported and 8% on a constant currency basis.

Analysts expect P&G's sales and earnings to respectively rise 1% and 6% this year. Those tepid growth estimates don't really justify the year-long rally, which boosted its P/E to 24 -- but that merely matches the industry average for personal products companies and is barely lower than the S&P 500's P/E of 25. Therefore, P&G isn't a bad long-term play, but there are clearly better income-generating consumer staples stocks with comparable dividends. Let's check out two such stocks which look more attractive at current prices -- Altria (NYSE:MO) and Unilever (NYSE:UL).

Altria Group

Altria, the largest tobacco company in America, is immune to destructive currency headwinds because most of its revenue comes from the domestic market. Its flagship Marlboro brand controls over half of that market, and it's diversified into cigars, snus, wine, e-cigarettes, and a stake in brewery SABMiller over the past decade.

Altria posted flat year-over-year revenue growth last quarter and is only expected to post 3% sales growth this year. But on the bottom line, its adjusted EPS rose 9.5% last quarter and is expected to improve nearly 10% this year. Unlike P&G, which faces plenty of cheaper competition, Altria can raise prices on cigarettes to offset declining volumes. It also regularly cuts costs and repurchases stock to support its bottom line growth.

Altria spent 80% of its free cash flow on dividends over the past 12 months. That's higher than P&G's FCF payout ratio of 61%, but both companies have plenty of room to keep raising their dividends. Altria currently pays a forward yield of 3.4%, which is higher than P&G's 3.1%, and it's raised that payout every year since it spun off its overseas operations as Philip Morris International in 2008. Altria's P/E of 23 is only slightly lower than P&G's, but I personally prefer its streamlined business model to P&G's heavily diversified portfolio of consumer brands across the world.


At first glance, consumer staples giant Unilever looks nearly identical to P&G. It spent 64% of its free cash flow on dividends in 2015, but only raised its payout annually over the past four years. Its forward yield of 3.1% is comparable to P&G's, and it also trades at 24 times earnings.

However, Unilever is a more attractive play than P&G for two simple reasons. First, it's based in London and Rotterdam, which means that a weaker euro boosts its growth in non-European markets with stronger currencies. Second, Unilever is growing at a much faster rate than P&G. In the first half of 2016, Unilever's sales fell 3% as reported but rose over 5% on a constant currency basis. Its "underlying" sales growth, which is comparable to P&G's organic growth, improved almost 5%.

Unilever also recently delivered a disruptive blow to P&G's grooming segment with its acquisition of subscription-based razors and blades start-up Dollar Shave Club. On the bottom line, Unilever's core earnings in the first half rose 1.3% as reported and 7.5% on a constant currency basis. In my opinion, these strengths make Unilever a better consumer staples play than P&G, even though the two stocks share similar fundamentals.

Should you buy Altria and Unilever today?

I believe that Altria and Unilever are better dividend plays than P&G at current prices, but that doesn't mean that I think that these three stocks are bargains. The P/E ratios on all three stocks are high compared to their historical averages, and their yields are all near multi-year lows. This means that it might be wise for investors to wait for interest rate concerns or a market downturn to knock all three stocks down to cheaper levels with higher yields before buying.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.