Procter & Gamble (PG 0.18%) shares have tracked the broader market as the S&P 500 Index has fallen over the past year. Although the consumer staples giant's stock isn't down quite as much -- falling 12% versus the S&P's drop of 15% -- it's still enough to attract the attention of investors looking for bargains. Indeed, companies with six decades' worth of annual dividend increases don't go on sale very often. So it the stock worth buying today?
Brands you trust
P&G, as the company is often called, has an incredible collection of brands, including Bounty, Pampers, Tide, Always, and Charmin, among many others. These are industry-leading names that draw loyal customers in both good economic periods and bad. The consumer staples company has been doing fairly well of late, with organic sales higher in each of the past three fiscal years and through the first half of fiscal 2023 as well.
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A key factor in the company's long-term success is its focus on innovation. Management works to provide improvements for which consumers will be willing to pay extra. Given the company's size (highlighted by its huge $330 billion market cap), it has ample resources to support its research and development efforts and the advertising and distribution needed to effectively get new products to market.
Notably, so far in fiscal 2023, P&G has achieved organic sales growth in all 10 of its product categories and has increased its market share in 29 of its top 50 country/product combinations.
That said, all is not perfect in the land of Procter & Gamble. Inflation has been high, leading to significant margin pressures. After several years of growth, core earnings per share fell roughly 3% in the first six months of fiscal 2023. The decline might seem modest, but it is a notable directional shift. And it helps to explain why investors are so downbeat on the stock of late.
Is it cheap yet?
Dig in at P&G a little bit and there's one clear takeaway; the stock is not cheap. So if you are a deep value investor, you won't want to buy it today. However, industry leaders like Procter & Gamble very rarely go on sale. Paying a reasonable price is often a good choice if you are a long-term dividend investor.
Using the dividend yield as a rough gauge of valuation, P&G's 2.5% yield is about middle of the road, historically speaking. That figure is well above what you'd get from an S&P 500 ETF, but you could probably earn as much, if not more, by keeping your cash in a bank account today.
What you couldn't get from safe cash is 66 years' worth of annual dividend increases, with the last decade of hikes coming in at roughly 5% a year. That may not sound like much in a high-inflation environment, but it is actually better than the historical average growth rate of inflation. From this perspective, a long-term income investor might still want to own P&G even at today's prices.
But many investors will probably look at valuation ratios like price-to-earnings (P/E), price-to-sales, price-to-book-value, and price-to-cash-flow as a guide. The picture is mixed across these metrics. All but the P/E are above their five-year averages, while the P/E is notably below. Price to forward earnings, which includes analyst expectations of future performance, is also below the five-year average. The stock doesn't look cheap, but it doesn't look particularly expensive, either.
Safe haven
All in all, P&G is a very well-run company with a long history of success behind it, selling products that customers buy in good times and bad. While it is not cheap today, long-term investors with a dividend focus might still find it of interest. Yes, you'll probably be paying full price, but, given the economic uncertainty today, that might be worth it. The company is highly likely to keep paying you a growing dividend for years to come, no matter what happens on Wall Street.
