April has been a busy month for Procter & Gamble (PG -0.01%) shareholders. The consumer staples giant just announced its 2024 dividend hike before issuing its third-quarter earnings update later in the month.
Those reports were packed with fresh data about P&G's profit outlook and its growth rate in an industry that's suffering from weaker demand trends. Yet, Wall Street still isn't excited about the stock, with most investors seeking to focus instead on faster-growing stocks in the tech industry.
That emphasis might be setting patient investors up for great returns from here. P&G's business isn't firing on all cylinders, to be sure. But there are some good reasons to like the stock today. Let's look at three of the biggest positives at present.
1. Stable sales trends
The biggest knock against P&G's stock lately has been fears about slowing growth through at least 2024. Consumer spending patterns are returning to pre-pandemic norms just as inflation has come down. The danger for P&G here is that the company will have no room to raise prices even as its volume trends stay negative.
Those challenges could be lessening, though. P&G's sales volumes were flat in fiscal Q3, marking an improvement over the prior quarter's 1% decline. Prices rose 3%, too, leading to a 3% increase in overall organic sales.
"We delivered solid sales and strong earnings...despite multiple headwinds," CEO Jon Moeller said in a press release. P&G achieved some big financial wins in the period, including higher profit margin and ample free cash flow.
2. Cash returns
That gushing cash flow is funding dividend and stock buyback spending that can support excellent shareholder returns over the next year. P&G is planning to send $15 billion to its investors in fiscal 2024, including spending as much as $6 billion on stock repurchases.
PG Free Cash Flow data by YCharts
The bigger part of that capital return plan is a growing dividend, which was just hiked by 7% to land at $1 per share. This boost was P&G's 68th consecutive annual increase, putting it near the top of the list of Dividend Kings (companies that have boosted their payouts for at least 50 straight years).
3. Price and outlook
P&G's stock is valued at about the middle of the range that investors have seen since mid-2022. Its premium of nearly 5 times sales isn't especially cheap compared to rival Kimberly-Clark, which is trading for 2.1 times annual sales.
Keep in mind that P&G is far more profitable, though, with an operating profit margin of 24% -- 10 percentage points higher. The company also owns more industry-leading brands in niches ranging from laundry care to paper towels and diapers. Those competitive assets have allowed it to outgrow smaller rivals as it wins market share even during industry slumps.
P&G brings enough to the table to justify the stock's premium, in other words. Plus, you'll get a dividend yield that's a full percentage point higher than the wider market's yield, along with significant stock buyback spending. The company's earnings are on track to improve at a double-digit rate this year despite the industry's slowdown.
That cyclical downturn will be temporary, and P&G will likely emerge from it in a stronger position, just as it has following dozens of previous demand slumps in its 100-plus-year history. Investors should consider taking advantage of Wall Street's pessimism about the stock in 2024, then, with an eye toward owning this consumer staples giant for many more years to come.
