You may not go out to buy anything labeled Procter & Gamble (PG -0.78%), but you probably buy the company's Crest, Bounty, Gillette, Tide, or Pampers products. And those are just a few of the iconic brands in the company's portfolio. This is the underpinning of what is a very strong company. Now add in a reasonably attractive yield, historically speaking, of 2.4%, and conservative income investors might want to take a closer look.
Procter & Gamble's business is the key
P&G, as the company is widely known on Wall Street, owns a very impressive collection of brands. The portfolio is filled with names you know in product categories that see frequent repeat purchases from generally brand-loyal customers. This isn't an accident. The consumer staples giant has worked hard to finetune its brand list.
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On top of making sure it has good brands, the company has also been very effective at supporting those brands. This ranges from advertising to distribution to research and development. The company's massive size -- it has a market cap of $360 billion -- helps in this regard, since it has the financial heft to invest in its business in ways that smaller companies can't. All in, the goal is to provide consumers products that offer clear benefits over similar offerings.
P&G also has global reach. That allows the company to take advantage of faster-growing regions, like emerging markets, as they move up the socioeconomic ladder. That effort, of course, is built on the foundation the company has developed in mature markets, like North America and Europe. Having a core-and-explore approach won't lead to exciting growth over time, but it should provide slow and consistent results.
That shows up in the company's status as a Dividend King. A company can't increase its dividend annually for over six decades without executing well on a successful playbook. As noted, don't expect fireworks on the performance front, but the roughly-5% annualized dividend growth over the past decade is a strong number for those willing to pay for quality.
P&G stock isn't cheap, but it isn't expensive either
This is where things get a little more interesting. As Benjamin Graham, one of Warren Buffett's main influences, once said, even a great company can be a bad investment if you pay too much for it. Procter & Gamble's stock is not cheap today, and if you have a value focus you'll probably want to take a pass. But what about conservative dividend investors that care about creating reliable income streams? The answer is less clear.
For example, the price-to-sales ratio is just slightly above its five-year average. The price-to-earnings ratio is below the longer-term average, but that's a hard read because of an extreme number in 2019 that biases the average higher. The forward P/E ratio, which considers analyst expectations for future earnings, is slightly below the five-year average. All in, valuations using the top and bottom lines of the income statement suggest investors are paying full price for P&G.
This Dividend King's dividend yield, meanwhile, is about middle-of-the-road historically speaking. That too suggests that shares are likely fairly valued right now. While not a great value play, investors that prize income consistency might find the stock attractive so long as they don't mind paying full price for a great company. While that's not an unequivocal endorsement, for the right type of investor P&G could be just what your portfolio needs.
Take a closer look at P&G
Given the company's long history of success, Procter & Gamble looks like a great company. But it isn't a once-in-a-lifetime buying opportunity. The shares appear fully valued. For conservative dividend investors, that could be just fine on the risk/reward spectrum. Those with a value bias, however, will probably want to wait for a better entry point.
