We all want to see our stock continue to rise. But even the best companies don’t see their share prices rise in a straight line.
When they go down, it doesn’t mean you should rush out to buy. But this is an opportunity to examine their stories. If the long-term investment thesis holds, this is a buying opportunity.
This also becomes easier when companies pay regular dividends. This means you are getting paid to wait for the stock’s fortunes to improve.
Procter & Gamble (PG 2.55%) Not only has it paid dividends for more than 100 years, it has also increased them annually for more than half a century. it makes it dividend king.
Do Procter & Gamble’s fundamentals represent a long-term buying opportunity? It’s time to uncover why.
Image Source: Getty Images.
selling necessities
Procter & Gamble, A large consumer staples companyLeading market share in various categories like shampoo, razor, toothpaste, detergent and diapers. Familiar and popular brands include Head & Shoulders, Gillette, Crest, Tide, and Pampers.
However, despite selling these basic goods, its sales have not been untouched by macroeconomic factors, including persistently high inflation, which has put a strain on consumers’ wallets. With skyrocketing gas prices and increased tariffs, they may feel more pain for some time.
Despite these headwinds, Procter & Gamble’s fiscal third quarter sales, adjusted to remove foreign currency translation effects and acquisitions/divestments, grew 3%. Importantly, volumes contributed 2 percentage points, with the balance made up by price increases. The results were for the three months ending March 31. Management expects 4% sales growth for the year.
The growth may not excite investors, but sales for the most recently reported quarter are up compared to the prior period. In the second quarter, adjusted sales remained flat compared to a year earlier.
attractive dividends
The share price has fallen 8.2% till May 7 last year. During this time, S&P 500 index There was an increase of 30.3%. Procter & Gamble underperformed the S&P 500 consumer staples sector’s 5.9% gain.
today’s change
(-2.55%) $-3.73
current price
$142.69
key data points
market cap
$341B
day limit
$141.97 -$146.27
52wk range
$137.62 -$170.99
volume
174K
average volume
10m
gross margin
50.88%
dividend yield
2.91%
While waiting for the share price to recover, shareholders can enjoy a 3% dividend yield, nearly three times the S&P 500’s 1.1%. Meanwhile, Procter & Gamble generates abundant free cash flow (FCF), or operating cash flow minus capital expenditures, to support the dividend. In the first nine months of the year, the company generated FCF of $11 billion, while it paid out $7.6 billion in dividends.
With its high market shares for basic commodities for which demand is fairly consistent, Procter & Gamble has a long history of paying dividends, paying since 1890. Even better, last month’s announcement of a 3% quarterly rate increase, to $1.0885 per share, extended the company’s streak to 70 consecutive years.
Nothing suggests the company’s confidence in its prospects like increasing dividend payments.
better valuation
The decline in Procter & Gamble’s share price has created better valuations for investors. The price-to-earnings (P/E) ratio, a traditional metric, fell from 25 to 21 over the past year.
This is lower than Procter & Gamble’s historical valuation. The stock’s 10-year average P/E ratio is 25. Steady sales growth and consistently high dividends suggest it deserves a multiple in line with its historical average.
Its current P/E ratio is also lower than the overall market large capitalization stocksAs measured by the S&P 500. The P/E multiple of the index is 32. True, Procter & Gamble’s growth prospects don’t compete with some in the index, but that’s enough of a difference that doesn’t seem fair.
The company’s strong commitment towards regularly increasing dividends, steady sales growth and attractive valuations make the stock an attractive company that you can buy and hold for a very long time.