This Unstoppable Dividend King is a Buy Right Now

Procter & Gamble (PG) gained 1.9% on Wednesday after reporting second-quarter fiscal 2025 results. However, the stock had been up even higher earlier in the session.

P&G is coming off a decent 2024, gaining 14.4% — outperforming the 12.9% rise in the Dow Jones Industrial Average. Aside from modest gains over time, the primary allure of P&G stock is its stable and growing dividend. The company has increased its payout every year for 68 consecutive years and yields 2.4%. P&G has one of the longest track records among Dividend Kings, which are companies that have paid and raised their dividends for at least 50 consecutive years.

Here are key takeaways from P&G’s latest earnings report and three reasons why the Dow stock is worth buying now, especially for risk-averse investors.

1. A return to positive volume growth
In its fiscal 2024, which ended June 30, 2024, P&G reported just 2% net sales growth. This was entirely based on a 4% price increase partially offset by a 2% negative effect of foreign exchange. The company’s volume growth was flat for the fiscal year. The trend continued in first-quarter fiscal 2025, when P&G reported flat volume growth, a 1% increase in price, and negative 1% net sales growth.

Investors generally want net sales growth based on higher volumes, not just price increases. Higher volumes indicate that demand for products is strong, whereas price increases tend to have their limits, especially when dealing with everyday household goods.

P&G is a global business, so the strong U.S. dollar is weighing on its profitability because it must convert sales made in foreign currencies back into dollars. P&G can’t control the negative effect of foreign exchange on its earnings, so it must focus on improving its product lineup, along with effective marketing.

In the recently reported quarter, P&G notched 2% net sales growth and 3% organic sales growth, this time seeing a 1% increase in volumes, a 1% increase in mix, flat pricing, and no effect of foreign exchange. A favorable increase in mix shows that consumers are pivoting toward more expensive options within some of P&G’s categories.

The results may not be showstopping, but they indicate that P&G is headed in the right direction.

2. A modest dividend raise is coming
P&G has announced its annual dividend raise every April for over 20 years. There’s no reason to believe that trend won’t continue this year, and we already have a good idea of the size of that raise.

In its latest earnings report, P&G reiterated its prior full-year fiscal 2025 guidance for around $10 billion in dividends and $6 billion to $7 billion in common stock repurchases.

In fiscal 2024, it paid $9.31 billion in dividends to shareholders. Given the $10 billion guide, it may look like a sizable raise is coming. However, because P&G’s fiscal year ends June 30, and it raises its dividend in April, each raise affects the fourth quarter of the current fiscal year and the first three quarters of the next fiscal year. This means that P&G’s sizable 7.5% raise from last April was only felt in the last quarter of fiscal 2024.

The quarterly dividend expense is already at $2.445 billion. So P&G would just have to raise the payout by a few percentage points to reach its $10 billion annual dividend target.

Most likely, I think we’ll see a modest 4% or so raise from P&G this April. That’s because of where the dividend expense stands today, the timing of its fiscal year, and because P&G is forecasting more buybacks in fiscal 2025 ($6 billion to $7 billion) than the $5.01 billion from fiscal 2024.

P&G is a unique Dividend King because it uses both buybacks and dividends to return capital to shareholders. A Dividend King like Coca-Cola may yield more than P&G, but it doesn’t consistently buy back stock.

3. Reliable results
The simplest reason why P&G can continue delivering for investors in 2025 and beyond is its strong business model and brand portfolio.

P&G has a diverse product lineup spanning beauty, grooming, oral care, personal care, fabric and home care, baby products, feminine products, and family care. P&G has about 80 brands, most of which it has owned for at least 20 years, like Pampers, Charmin, Bounty, Tide, Downy, Pantene, Old Spice, Crest, Vicks, Gillette, and more.

P&G’s secret in the 21st century has little to do with developing new brands. Rather, the success comes from steadily growing its existing brands by continuing to improve and market products under those brands — which boosts volumes to a growing population and justifies price increases over time.

P&G can put up solid results, even in a recession, because consumer demand for daily use goods isn’t as sensitive to the economy as discretionary purchases are. What’s more, P&G sports industry-leading operating margins — a testament to the quality of its brands and the advantage of its size — as P&G is by far the largest household and personal products company by market capitalization.

P&G’s dividend is as elite as it gets
The mid-point of P&G’s fiscal 2025 guidance calls for $6.98 in core earnings per share. Based on the share price at the time of this writing, investors are essentially paying 23.6 times fiscal 2025 earnings for the stock, which isn’t bad for an ultra-reliable Dividend King.

There are plenty of higher-yielding stocks than P&G, but very few (if any) stocks feature as reliable a dividend. P&G is the ultimate safe stock for folks looking to supplement income in retirement or simply collect passive income from a company they can count on.

Investors should be on the lookout to see if P&G can build upon its volume growth in the coming quarters and continue to refrain from taking price increases too far.

— Daniel Foelber

Source: The Motley Fool