Procter & Gamble (PG 0.53%) is a well-known commodity on Wall Street. Investors have been attracted to the stock for its dominant brand position in several consumer-staples categories and its steadily rising dividend.
But there's more to this blue-chip stock than just those positive factors. Let's take a look at some less obvious but critical factors that set P&G apart as a stock investment.
It has pricing power
Procter & Gamble can raise prices when it needs to generate more cash. That's exactly what happened in the most recent quarter, which ended in late December.
P&G hiked prices by between 8% and 13% across its core categories and by 10% for the entire portfolio in recent months. That increase allowed organic sales to rise 5% even though volumes fell by about the same amount.
P&G didn't give up much in the way of growth when it raised prices to adjust for rising costs, either. On the contrary, management just raised its fiscal-year outlook as the company entered the second half. "We delivered solid results in the second quarter of fiscal year 2023," CEO Jon Moeller told investors on Jan. 19.
P&G is a cash-producing machine
P&G generates cash at a rate that few other companies can match. Operating cash flow was nearly $4 billion in the last quarter, which helped fund $2.2 billion in dividend payments and $2 billion in stock buybacks. The company lately has been producing over $15 billion in operating cash each year.
PG Cash from Operations (TTM) data by YCharts.
P&G regularly turns roughly all of its net earnings into free cash flow each year. That impressive financial feat happens during excellent growth years, like in 2021, and in tougher selling environments, like the current period.
The company recently confirmed that it's targeting a 90% cash-conversion ratio in fiscal 2023, allowing it to pay about $9 billion in dividends while repurchasing as much as $8 billion of its stock. Smart investors know that those cash returns come on top of the steady growth they see in areas like annual earnings.
Built for tough environments
The value of holding P&G shares is most obvious during tough market environments like this one. In January, P&G raised its sales outlook, confirmed its earnings forecast, and said it still plans to send around $15 billion of cash to its shareholders in fiscal 2023, despite historic pressures on the business from currency-exchange rate shifts, cost spikes, and slowing consumer-spending patterns.
That level of predictability is great to have in your portfolio at all times -- and especially now. P&G stock offers a good balance of growth and income without exposing investors to too much risk that sales or earnings will decline.
The best news is that shares have become a bit cheaper in the past year, thanks to pessimism in the wider market. If you don't already have the stock in your portfolio, that valuation decline might help convince you to consider buying P&G stock today.
