Defensive Characteristics Help Procter & Gamble Stand Apart

In these uncertain times, there are few stocks that can offer as much comfort

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Sep 18, 2022
Summary
  • There are many factors that led to this terrible first half of the year for the stock market, most notably inflation.
  • With the markets in a rut, the only companies generating interest seem to be defensive plays like Procter & Gamble.
  • From household staples to grocery essentials, Proctor & Gamble covers all your needs. The products will always be in demand, even when the economy dips.
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Procter & Gamble Co. (

PG, Financial) is a multinational consumer goods company with a long history of paying dividends and being a reliable investment for shareholders.

Founded in 1837, it has grown to become one of the largest corporations in the world, with over $80 billion in annual revenue in fiscal 2021. The company's strong financial performance is driven by a diversified portfolio of well-known brands, including Tide, Gillette and Pampers. In addition, Procter & Gamble has increased its dividend payout for 66 consecutive years, making it one of the most dependable dividend stocks on the market. With its strong financial performance and consistent dividend payments, it could be a safe and reliable investment for long-term shareholders.

The company is performing well financially and has absorbed the impacts of inflation, energy issues and higher freight costs quite well. It has also been able to navigate through lockdowns in China and the Russia-Ukraine conflict unscathed. However, these headwinds can affect its performance in the future. The company itself expects a slowdown in revenue growth.

Why is Procter & Gamble doing well?

Procter & Gamble is a giant in the consumer packaged goods industry with a product portfolio that includes some of the world's most iconic brands. The company has been in business for over 180 years and performs well in a challenging market. It has a strong history of innovation and a proven track record of delivering shareholder value.

Considering the company had limited operations in parts of China due to coronavirus-related lockdowns and fewer sales in Russia, the overall numbers were rather impressive for full fiscal 2022, with revenue increasing 5% and earnings per share growing 6%.

The company also projects an increase in revenue and earnings during the 2023 fiscal year, albeit at a slower rate due to expected currency fluctuations and other macroeconomic factors. The numbers help illustrate the importance of having a portfolio of products that are considered necessities. This gives the company an advantage during economic hardship, as people will still need to purchase these items even when their budgets are tight.

Procter & Gamble is effectively marketing its products as affordable options, making them more appealing to budget-conscious consumers. In addition, the company has a diversified product portfolio, which helps insulate it from downturns in any particular industry.

Best in breed among Dividend Kings

One of the best defensive characteristics of Procter & Gamble is the company's dividend. Investors often overlook this aspect of the company, which deserves more credit.

The company has been paying a dividend for 132 consecutive years. Out of this total period, the number of years of consecutive dividend increases is 66. This amazing performance has ensured its place among the Dividend Kings, a select group of stocks that have grown their dividends for 50-plus years.

How has the company been so successful for so long? Well, one of the reasons, as already discussed, is how good the operating model is. However, the consistency of the consumer goods market is also an important factor in its success.

The U.S. consumer goods market is strong, and there are no signs of its performance waning. Retail sales have continued to grow despite Covid-19 and should gain strength in the years to come. Inflation can have an impact in the medium to long run. However, at the current pace, sales for everyone in the consumer goods industry, not just P&G, will continue to grow.

The bear argument hinges on inflation

Although Procter & Gamble is in a great position, there are some short-term risks. For example, higher prices can lead to lower sales in the short to medium term. Higher freight costs are another major concern, forcing companies to raise prices. Energy costs are rising due to the Russia-Ukraine conflict, complicating matters further.

The company is also suffering from unfavorable currency exchange rates. Its sales revenues are negatively affected due to currency fluctuations, lowering the overall profitability. Procter & Gamble may suffer from these issues in the medium term, but it should be able to weather the storm due to the diversity of its offerings and its existing market share.

Takeaway

Procter & Gamble could be a great investment for these uncertain times because of its recession-resistant model. The company sells household goods essential for daily living, such as toothpaste, shampoo and laundry detergent. As a result, even when consumers are cutting back on spending, they still need to purchase these items. In addition, Procter & Gamble has a diversified product portfolio, so even if one product line is not doing well, the company is still likely to be profitable overall.

Finally, Procter & Gamble has a strong global presence, so it is less affected by any one country's economic downturn. For these reasons, it may be a great stock to consider during economic uncertainty. Recent results confirm it will only improve from here.

Disclosures

I/we have no positions in any stocks mentioned, and have no plans to buy any new positions in the stocks mentioned within the next 72 hours. Click for the complete disclosure
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