A pair of critical operating updates in April provided more clarity around Procter & Gamble's (PG 0.86%) business prospects. The consumer staples leader is targeting slightly faster sales growth in 2023, and management just raised the dividend for the 67th consecutive year.
That good news was tempered by some new Wall Street concerns around P&G's profitability. Consumer demand trends look shaky heading into a potential recession in late 2023 or 2024.
With those crosscurrents in mind, let's look at whether the stock is a compelling investment opportunity today.
Pricing power
The headline takeaway from P&G's late-April earnings update was that the company maintains excellent pricing power in a tough selling environment. While sales volumes declined 3% through late March, a double-digit price increase helped organic sales revenue jump 7% in the period.
This result edged past expectations and convinced management to raise their full-year growth outlook. P&G now sees sales rising about 6% this year after jumping 7% in 2022.
Prospective investors will also like how impressive these metrics look compared to rivals. Kimberly-Clark (KMB -0.28%) is expanding more slowly, posting a 5% organic sales boost this past quarter. P&G is also beating its smaller peer on key financial metrics such as cash flow and operating profit margin.
The concerns
However, there are worrying signs about the next few quarters. It's not ideal that P&G had to rely on price increases to keep sales rising in recent months. Profitability is down from its pandemic highs, too, thanks to soaring costs. A further slowdown in consumer spending would amplify these challenges, likely leading to declining earnings over the short term.
PG Operating Margin (TTM) data by YCharts
And P&G stock isn't a screaming value today. Shares are priced at about 4.8 times revenue, compared to 2.4 times revenue for Kimberly-Clark. That P/S ratio isn't far from P&G's all-time high valuation in the final days of 2021.
It makes sense that Wall Street would be assigning P&G an elevated valuation due to its stable earnings growth and its market-leading position in the consumer staples industry. But investors' returns from here might still look disappointing.
Cash and returns
Yet, a P&G investment is about more than just stock price movements. Shareholders also get a steadily growing dividend, which in mid-May rises for a 67th consecutive year. P&G is delivering a 3% higher payout this year, compared to last year's 5% increase.
It's a testament to its strong global business that P&G can keep delivering higher dividend payments even as costs soar and consumer spending trends slow down from pandemic peaks. There aren't many streaks of dividend payments longer than P&G's, either. The company has been rewarding investors with income since it was incorporated in 1890.
A potentially weak few quarters ahead might pressure the stock over the next year or so, especially given its relatively high valuation today. But investors shouldn't let these issues keep them away from one of the most impressive dividend stocks on the market. P&G shares will likely be a solid holding to have in your portfolio, even through a potential recession ahead.
