Reaching the status of Dividend King is an incredible achievement and puts a company in a rarefied grouping. With over six decades of consecutive annual dividend increases under its belt, Procter & Gamble (PG -0.78%) is soundly in Dividend King territory. But investors aren't oblivious to the company's long-term success. Is this stock a buy, sell, or hold today?
Procter & Gamble operates a wonderful business
Procter & Gamble is a consumer staples company that owns an iconic portfolio of brands, including Bounty, Pampers, and Crest, among many others. There are a number of important takeaways here. The first of which is that the company sells lots of small products that loyal consumers buy on a regular basis, in good markets and bad. It is a very resilient business.
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But there are a lot of consumer staples companies. What helps set P&G, as it is more commonly called, apart is its vast size. The roughly $350 billion market cap hints at the issue, but there's more to it than just being big. In the consumer staples space, size comes with material advantages because scale helps to lower operating costs, provides greater clout with suppliers and customers, and allows the company to invest in its brands. That last point is vital.
The words "new" and "improved" are huge in the consumer staples niche because it drives customer purchases of what are, essentially, long-standing cash cow-type products. Having a strong innovation history, P&G is a vital partner for the retailers that sell its products. That creates an entrenched industry position within stores and, by extension, in consumers' homes.
In many ways, Procter & Gamble is a great company. The problem is that even a great company can be a bad investment if you pay too much for it. So, is P&G a buy, sell, or hold today?
The argument for holding P&G stock
Normally these types of discussions start with buy or sell, but in this case, Procter & Gamble continues to perform very well ... and that's the big story. For example, the company managed to post solid mid- to high-single-digit organic sales growth throughout fiscal 2022 and through the first three quarters of fiscal 2023 despite having to deal with the impact of a rapid rise in inflation. In fact, volumes were only a 3% year-over-year headwind in the third quarter despite a huge 10% tailwind from price hikes (leading to 7% organic sales growth). Customers are clearly sticking with the company's brands even in the face of higher prices. If you have owned P&G for years, there's really no reason to think that it has suddenly lost its way.
The argument for buying P&G stock
Suggesting that investors buy the stock today is a harder proposition to tackle. The dividend yield is around 2.5%, which is sort of middle-of-the-road, historically speaking. And while the yield is higher than what you would get from an S&P 500 index fund, it is hardly high. You could just leave the cash in a CD or bank account and generate as much (if not more) income. Dividend investors aren't likely to be jazzed.
Those with a value focus, meanwhile, probably won't find the stock attractive, either, with the price-to-sales, price-to-book value, and price-to-cash flow ratios all above their five-year averages. And while the price-to-earnings ratio is below its five-year average, the average is skewed by one oddly high year. Simply put, P&G does not look like a cheap stock.
As for growth investors, well, P&G isn't likely to be a standout, either. Over the past decade, annualized earnings-per-share growth is in the 5% area. While the company has proven to be a reliable steward of shareholder capital over time, slowly and steadily growing its business, it is not going to excite many investors on the growth front.
Most investors looking at the stock today will probably be better off putting P&G on their wish list than their buy list right now unless they are happy paying the full fare to collect a reasonable and reliable dividend.
The argument for selling P&G stock
Procter & Gamble isn't cheap, but it also isn't oddly overpriced, either. So investors that own it should probably keep on owning it. In fact, if you have owned the shares long enough, the yield on purchase price is probably quite attractive and selling would hurt you more than help you -- even if the stock price were to temporarily rise to unrealistic heights. Selling P&G would require something fundamental changing in a material way, which doesn't seem likely. And a negative fundamental business change certainly isn't an issue today.
Stay the course
All in, P&G is a very well-run consumer staples company that has long rewarded its shareholders for sticking around. It won't likely excite you, but it's also unlikely to let you down, either. Basically, the stock can be a foundational investment for a diversified portfolio. That is, if you buy it when it is unloved on Wall Street (i.e., trading at a discount). That's just not the case today, so most investors will want to watch and wait here.
