If you were lucky enough to buy Procter & Gamble (NYSE:PG) last June at its 52-week low of $73.60, today you’re sitting on a 48% unrealized profit. That’s an impressive haul, particularly from Procter & Gamble stock, which doesn’t necessarily have a high-growth reputation.

In fact, the PG stock price has performed so well that shares have now exceeded their all-time high of $108.68. If you’re a momentum investor, PG has gained almost 9% in the last three months alone.

And if you’re dividend investor, Procter & Gamble stock still yields an attractive 2.8%.

However, if you’re not a buy-and-hold investor and are sitting on profits, you might want to take them. And if you’re contemplating buying because the PG stock price is on a roll, you might want to think twice. Here’s why.

Free Cash Flow and the Dividend

Good companies grow their free cash flow and dividend payments. Dividend investors look for these two things in a business. Procter & Gamble has increased its payout for 63 years, making it a Dividend Aristocrat.

A quick look at PG’s FCF in 2018 shows that it grew 19% from $9.4 billion in 2017 to $11.2 billion this past year. That’s a plus. However, if you go back five years, it’s only grown by 2.6%. Meanwhile, the annual dividend payment’s increased by 30% to $2.98 a share.

Not surprisingly, its long-term debt over the past five years has grown by 12% from $19.1 billion in 2013 to $21.4 billion at the end of this year’s third quarter. If FCF is not growing fast enough, taking on more debt becomes necessary to perform critical functions. These include dividend payments share repurchases, and other actions.

How Expensive Is the PG Stock Price?

Value investors like to buy stocks whose FCF yields are 8% or higher. FCF yield is defined as FCF divided by enterprise value (market capitalization plus short- and long-term debt less cash).

Its current FCF yield is 4.1% (trailing-12 month FCF of $11.9 billion divided by enterprise value of $289.6 billion). Its current dividend yield is 2.8%. Together, they’re 6.9%.

In June 2014, PG’s free cash flow was $10.1 billion. Its enterprise value was $239.6 billion for an FCF yield of 4.2%. The company’s dividend yield at the end of fiscal 2014 was 3.1% for a combined total of 7.3%, 40 basis points higher than today.

The big positive if you own Procter & Gamble stock today is that it does a much better job generating FCF from its earnings. In 2014, it created 86 cents of FCF from every dollar of earnings. Today, it makes 99 cents of FCF using the same framework.

But the big problem with Procter & Gamble stock is that the underlying sales growth is atrocious.

In the first nine months of 2019, PG grew sales by 0.52% or $261 million. Of its five reportable segments, two had decent-sized declines year over year. If not for the 4.3% growth rate from its beauty division (the company’s third-largest segment), 2019 would be a write-off.

On the bottom line, it’s not much better. For instance, pre-tax income is up less than 1% in the first nine months of the fiscal year. If not for Trump’s tax cut, its net profits wouldn’t be nearly as substantial.

The Bottom Line on Procter & Gamble Stock

Trading at 24.1-times FCF with very little in the way of sales or earnings growth, here’s the plain truth: the PG stock price is anything but cheap.

However, the fact that it’s doing a better job converting net income to FCF than in the past suggests it’s probably fairly valued at this point or maybe a little on the expensive side.

Are there better options? Probably. But who can resist the dividend?

At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.