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Why Procter & Gamble Stock Is a ‘Must-Have’ Stock


Apr. 20 2020, Updated 10:47 a.m. ET

So far, Procter & Gamble (NYSE:PG) stock has been resilient to the stock market carnage in 2020. The stock is a must-have in investors’ portfolios due to its defensive business, the sustained demand for its products, and healthy dividend payout. Procter & Gamble stock would add much-needed stability amid the current market scenario. Recently, the company posted stellar results for the third quarter of fiscal 2020 and increased its dividends for the 64th consecutive year.

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Strong Q3 performance

Procter & Gamble posted revenues of $17.2 billion in the third quarter—up about 5% year-over-year. The strong top-line growth came on the back of a 6% increase in organic sales. The company witnessed a spike in the demand for its products as consumers stocked up their pantries. However, the sales were a little below analysts’ forecast of $17.4 billion. The negative foreign exchange rate remained a drag. The organic shipment volumes increased 6% due to strong demand in North America and Europe. However, disruptions in Asia remained a drag.

Procter & Gamble did exceptionally well in Greater China—its second-largest market. Earlier, the company stated that it expects about a 20% decline in organic sales. However, Procter & Gamble did better and posted only an 8% decline in Greater China.

Procter & Gamble’s core gross margin expanded by 120 basis points in the third quarter due to strong productivity savings, lower commodity prices, and higher pricing. The core SG&A expense rate fell by 50 basis points, which reflected benefits from sales leverage. Meanwhile, the core operating margin expanded by 100 basis points, which reflected benefits from higher gross margins.

Procter & Gamble posted adjusted earnings of $1.17—up about 10% YoY (year-over-year). The adjusted earnings beat analysts’ estimate of $1.13. Increased organic sales, margin expansion, and the lower outstanding share count drove the company’s bottom line.

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Procter & Gamble hiked its dividend

On April 14, Procter & Gamble announced a 6% increase in its quarterly dividend. Notably, the company has a solid track record of rewarding investors through higher dividends and share repurchases. Procter & Gamble is a dividend aristocrat. Including the recent hike, the company has increased its dividends for the 64th consecutive year. In fiscal 2019, the company returned $12.5 billion in the form of dividends and share buybacks. Moreover, the company expects to return $7.5 billion in dividends and $7 billion–$8 billion through share repurchases in fiscal 2020

What’s in the offing for Procter & Gamble stock?

Procter & Gamble lowered its fiscal net sales growth guidance to 3%–4% from 4%–5% due to currency headwinds. However, the company reaffirmed its organic sales outlook. For the fourth quarter, I expect the sales growth rate to moderate. The pull-forward volumes from the fourth quarter to the third quarter and tough YoY comparisons will likely hurt the sales growth rate. However, the company is well-positioned to continue to benefit from sustained demand and innovative products. Productivity savings and share buybacks will likely drive Procter& Gamble’s bottom line and its stock.


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