Investors often want safety from their investments when markets get rocky; I don't blame them. Seeing your portfolio fall by 10%, 30%, 50%, or more can be extremely disheartening. A blue-chip stock can fall too, but there's something comforting about having your money in a company with the fundamentals to endure the pain of a recession or broader market decline instead of what was supposedly the next big thing.
Household goods conglomerate Procter & Gamble (PG 0.65%) might be the textbook example of a safe stock. It has a collection of features that make it arguably the perfect stock for a bear market, but does that mean you should buy it today? Here is what you need to know now and moving forward.
A stock built for almost anything
You might not immediately recognize the name Procter & Gamble; it's a conglomerate that operates behind the scenes, selling its many brands under their designated name. For example, just about everyone knows what Old Spice deodorant is. But look on the back of the label, and you'll see Procter & Gamble's name. The same holds for 65 individual product brands across 10 categories ranging from fabric care to dental products.
Collectively, these products add up to big business -- Procter & Gamble is doing about $80 billion in annual sales worldwide. The company's growth won't knock your socks off; revenue has grown by an average of 4% annually over the past five years. But its products are household necessities that people buy monthly, making Procter & Gamble resilient over the years. The company is a Dividend King, paying and raising its dividend for 66 years in a row, which is a testament to its durability.
PG Revenue (TTM) data by YCharts.
The company's operating profit hasn't fallen more than 30% from its high, going back to the early 1990s. There have been multiple recessions and market crashes, but Procter & Gamble keeps chuggin' along. Hypothetically, imagine that the business hit a massive speed bump, and cash profits plummeted 50% this year. The company has a dividend payout ratio of 64% and $7.2 billion in cash on hand, enough to still cover the dividend without borrowing any money.
Make things even harder and assume that it had to tap its balance sheet; with a 1.5 leverage ratio of debt to earnings before interest, taxes, depreciation, and amortization (EBITDA), there is plenty of room on the balance sheet to borrow in a pinch.
You throw all of these hypothetical hurdles at Procter & Gamble, things with such a small chance of happening, and the company has an answer for them! You can't guarantee anything in investing, but Procter & Gamble's dividend and long-term record of steady growth make it a stock you can confidently buy and hold for the long term.
But should you buy it in the short term?
Business performance and investment returns aren't the same; overpaying for a stock, even a blue-chip one like Procter & Gamble, can be a one-way ticket to disappointing returns. Procter & Gamble recently wrapped up its fiscal 2022 year at the end of June; its earnings per share came in at $5.81, valuing the stock at a price-to-earnings (P/E) ratio of 22. The stock's median P/E ratio over the past decade is 23, so the stock is slightly below its long-term norms.
If the stock's valuation stays around here moving forward, investors can expect solid returns; analysts expect EPS to grow around 6% annually over the next three to five years, plus a reliable dividend that yields almost 3%. High-single-digit returns aren't great, but you're paying for the safety that Procter & Gamble brings to a portfolio.
Investors could use a dollar-cost average strategy, slowly buying over time. You'll do OK buying today but could keep scooping up shares if Mr. Market keeps pushing the stock lower. Chasing a stock lower isn't necessarily a good idea in many instances. However, Procter & Gamble is a proven winner that has established itself as one of Wall Street's most reliable businesses. If the market wants to get irrational, investors should consider cutting against the grain and thanking the market as you add to your investment.
