PG with Nobias technology: During Troubling Times, Investors Flock Towards Procter and Gamble
During volatile times in the market, investors often seek cover in the consumer staples space. Why? Well, because regardless of what is going on in the world, companies in this sector sell products which are considered essential for everyday life. Therefore, even during economic downturns and financial crises, they tend to generate relatively strong sales and earnings outcomes. And, when it comes to the consumer staples space, one of the most popular stocks is Procter and Gamble.
This company has gone through some fairly aggressive restructuring over the last 5 years or so, as management has focused on selling out of low margin and slow growth brands, and using the proceeds to either re-invest in its best products and/or invest in new, faster growing markets to meet the 21st century consumers needs.
Right now, the company dividends its business up into 5 primary segments…P&G’s “Beauty” segment, which includes products in the hair care, skin care, and personal care industries, makes up approximately 19% of the company’s sales and 22% of the company’s earnings. According to the company, the notable brands from P&G’s “Beauty” segment are Head and Shoulders, Herbal Essences, Pantene, Rejoice, Olay, Old Spice, Safeguard, Secret, and SK-11.
P&G’s “Grooming” segment, which includes products related to shaving, makes up approximately 9% of the company’s sales and 10% of the company’s earnings. According to the company, the most notable brands from the “Grooming” are Braun, Gillette, and Venus.
PG Jan 2022
P&G’s “Health Care” segment, which includes products related to oral care and personal health care (primarily over the counter medicines) makes up approximately 13% of the company’s sales and approximately 12% of the company’s earnings. According to the company, the most notable brands from P&G’s “Health Care” segment are Crest, Oral-B, Metamucil, Neurobion, Pepto Bismol, and Vicks.
P&G’s “Fabric and Home Care” segment, which includes products related to fabric care (primarily related to laundry) and home care (primary related to air and dish care, as well as cleaning products) makes up approximately 34% of P&G’s sales and approximately 31% of the company’s earnings. According to P&G, the most notable brands within the “Fabric and Home Care” segment of its portfolio are Ariel, Downy, Gain, Tide, Cascade, Dawn, Fairy, Febreeze, Mr. Clean, and Swiffer.
And lastly, the 5th major segment of P&G’s business is “Baby, Feminine, and Family Care”, which represents approximately 25% of the company’s sales and earnings. According to P&G, the most notable brands within this portion of its overall product portfolio are Luvs, Pampers, Always, Always Discreet, Tampax, Bounty, Charmin, and Puffs.
The strength of PG’s brand portfolio is what has allowed it to generate such reliable results over the long-term. Proctor and Gamble isn’t known for fast growth in the market; however, the stock has increased its annual dividend for 65 consecutive years. This makes PG a “Dividend King”, meaning, a company with a 50+ year annual dividend increase streak.
According to The Dividend Champions List, there are only 39 U.S. companies that currently have annual dividend increase streams of 50 or more years. This puts P&G into a rare company. Nobias 4-star rated author posted this article about the Dividend Kings in August of 2021 for those interested in learning more about the cohort.
With all of this in mind, it’s interesting to see that PG shares are holding up relatively well during the recent macro sell-off in the markets, only down 1.6% from their all-time highs. The historical trend of investors seeking a safe haven with Proctor and Gamble shares appears to be repeating itself. And therefore, we wanted to take a look at what the credible analysts that we track with the Nobias algorithm have recently had to say about the company, to see whether or not this relative strength is warranted.
Demitrios Kalogeropoulos, a Nobias 4-star rated author, recently published an article at The Motley Fool, which highlighted “3 New Reasons to Love Procter & Gamble Stock”. Kalogeropoulos began his bullish piece highlighting PG’s recent top-line earnings beat, saying, “Investors had been looking for P&G to post just a 3% sales uptick, which would have come on top of the prior year's 8% spike. Instead, the company reported 6% higher organic sales, with each of its five core divisions growing year over year.” He continued, saying that while PG is dealing with supply chain and inflation related issues up and down its product lines, the company has been able to manage these trends relatively well.
Kalogeropoulos wrote, “P&G did face challenges around rising costs. In fact, gross profit margin dove by 4 full percentage points due to soaring prices for raw materials like plastics and higher freight costs. Yet the company offset those pressures with savings in other parts of the business and by hiking prices. It also helped that consumers are still spending aggressively on premium products like Tide Pods.”
Lastly, he said that he believes that data points towards Procter and Gamble taking market share from its peers in the consumer staples space, and this should enable the company to generating strong cash flows throughout 2022. He said, “The cash flow forecast received an upgrade, which means P&G has more resources it can invest in the business even while spending aggressively on dividends and stock buybacks. Management now expects to return between $17 billion and $18 billion to shareholders through these channels in 2022, up from the prior goal of $15 billion to $16 billion.”
Nicholas Ward is a Senior Investment Analyst at Wide Moat Research. He has spent the last 8 years writing about the stock market at various publications, including Seeking Alpha, The Street, Forbes Real Estate Investor, Sure Dividend, The Dividend Kings, iREIT, Safe High Yield, and The Intelligent Dividend Investor.
Daniel Foelber, a Nobias 5-star rated author, recently published an article which highlights his “3 Favorite Dividend Stocks to Buy During 2022” and Procter and Gamble was on his list. Regarding the company, he wrote: “What makes P&G unique isn't just its dividend but the way it generates cash to support that dividend. P&G's business is about as recession-resilient as it gets. Demand for DayQuil, Crest toothpaste, Tide laundry detergent, Dawn dish soap, Olay lotion, Pantene shampoo, Gillette razors, Pampers diapers, and Charmin toilet paper doesn't ebb and flow with the broader economy like other industries. During an economic slowdown, consumers tend to cut their discretionary spending on things they don't need. P&G makes products that people need, and therefore, consistently posts organic growth.
For investors that value a dividend they can trust above a riskier higher yield, P&G is as good as it gets in the U.S. stock market.” In recent months, we haven’t seen a credible author nor analyst publish a bearish report on PG. With that in mind, it shouldn’t come as a surprise that overall, when looking at all of the opinions posted regarding PG by credible authors, 93% of the reports expressed “Bullish” sentiment. And, when looking at the average price target applied to PG shares by the credible Wall Street analysts that we track (those with 4 or 5-star ratings) we see a $172.00 figure. Right now, PG shares trade for $162.62, meaning that this average price target represents upside potential of 5.7%.
Disclosure: As of 1/22/2022, Nicholas Ward has no PG position. Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.
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