With shares of Procter & Gamble Co (NYSE:PG) trading around 52-week highs, how much more runway does the company have left? — That’s the question on the minds of investors, who are trying to find a good entry point for PG stock.
But with the entire market now trading at all-time highs, owning PG stock is also about preserving capital and limiting downside risk. And this is where a company like Procter & Gamble, which has existed for 179 years, sets itself apart. Already one of the most valuable companies in the world, Procter & Gamble is making moves to create even more value for shareholders.
The Status of Procter & Gamble
The Cincinnati-based consumer products company, which owns leading brands such as Pampers, Pantene, Bounty and Gillette, has spent much of the past year transforming its product portfolio, exiting lower-margin businesses, while strengthening its core areas.
The result has not only produced seven straight earnings beats, but Procter & Gamble, which competes with Unilever Plc (ADR) (NYSE:UL) and Colgate-Palmolive Company (NYSE:CL), has now begun to deliver on its organic growth forecasts.
In its fiscal second quarter, Procter & Gamble delivered earnings per share of $1.08 with better-than-2% rise in organic growth. Notably, the bottom-line beat, which was achieved by improved profit margins, was driven by diligent costs controls.
What’s more, Procter & Gamble had enough confidence to raise fiscal 2017 organic growth guidance to a range of more than 2% to 3%. And these forecast suggests PG stock — despite its 52-week high status — may yet be a bargain.
The company’s dividend is another reason to bet on PG stock. Since its incorporation in 1890, Procter & Gamble has been paying a dividend for 126 consecutive years. The company’s 67-cent-per-share dividend puts the annual yield right around 2.9%, which is almost one full percentage point higher than the average yield paid out by stocks in the S&P 500 index.
Likewise, PG’s dividend tops the 2.1% yield paid out by Colgate-Palmolive and the 2.3% yield of Clorox Co (NYSE:CLX).
During the second quarter, PG stock paid $1.8 billion in dividends, spending some $1.5 billion on share buybacks. And with the company’s cash and equivalents totaling $6 billion at the end of 2016, combined with free cash flow of $2.2 billion, Procter & Gamble, despite spending aggressively on product innovation and advertising, has tons of financial muscle to keep rewarding patient shareholders.
Bottom Line for PG Stock
PG stock might not screaming bargain at 52-week highs, but rarely do good companies, which pay strong yields, trade below fair market value. But with Procter & Gamble working to lower its overall cost structure, while buying back tons of stock, the company’s value and earnings per share will continue to grow. Combined with its strong cash flow and consistent dividend, avoiding PG stock solely on valuation seems riskier than owning it here.
As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.
