Three Reasons to Buy P&G Stock

Does your portfolio need to invest more in the relatively safe consumer staples sector? What about dividend income? Perhaps you are even considering taking a stake inP&G ( The Procter & Gamble Company ) (NYSE: PG)But I can't convince myself to make up my mind. This is understandable. The stock isn't cheap right now, and there aren't many opportunities for growth in a company that is already very large.

But be careful not to let yourself give up on a good stock. There are many good reasons to invest in P&G right now. Here are my top three reasons.

1. P&G has leading products in many categories.

Being a market share leader does not mean that a company's stock is a buy. On the other hand, a category leader is usually there for a reason. That reason is that the product is superior and the company behind it knows exactly how to market it.

For this reason, it's important to know that P&G has a number of leading brands in different categories of consumer products. From Pampers diapers to Tide laundry detergent, Gillette razors to Crest toothpaste, P&G produces many products you probably know. About a dozen of the company's brands are the U.S. market share leaders at any given time, and by more than a little bit.

For example, its Bounty paper towels generate five times the annual revenue of its closest competitor. So does Gillette. P&G even dominates the crowded laundry detergent market, with sales of Tide products outpacing the country's second-largest competitor by a four-to-one margin. Connecting the dots: P&G is clearly doing something right.

As noted earlier, being a leader in multiple markets does not necessarily mean that you can buy the stock of the companies behind those leaders. Realistically, it is difficult to subvert a category leader if for no other reason than that buying their products eventually becomes a thoughtless habit.

In P&G's case, brand "advantage" research and development worth about US$2 billion a year has furthered this habit, allowing the company to avoid getting bogged down in price wars in which no one side can really win. It's a powerful advantage, and a key reason why P&G has been able to stay afloat during the latest wave of inflationary pressures.

2. Mode Advantage

If a company doesn't deliberately manage complexity and bureaucracy, then the bigger the organization, the worse it will be. P&G, however, has managed its large size well. The company conducts regular evaluations and reorganizes when necessary to reduce unplanned bloat when the big boys aren't looking.

However, the company still retained all the advantages of bragging about the larger size. Take marketing budgets, for example. In terms of advertising mass spending, P&G is often the largest advertiser in the world, spending about $8 billion a year on e-commerce, print, digital and in-store promotions. Advertisers such asClark'srespond in singingUnion Hewlett-PackardThis means that smaller competitors can't keep up.

The competitive advantages of the new model don't stop there. P&G has more market-leading products than any other company in the world.Wal-Martrespond in singingKeroseneP&G also enjoys a significant advantage in working with retail partners such as carriers. This often results in P&G's products being prominently displayed in stores and benefits such as co-location of advertising spend.

However, P&G can also pay more, which makes it more challenging for its competitors. For example, P&G has made significant investments in artificial intelligence, which it is applying to a variety of areas, such as more efficient production and more effective advertising.

3. P&G has an excellent profit-sharing pedigree.

Last but not least, interested investors can safely expect P&G to maintain its current position as a dividend giant. P&G has been paying regular dividends for decades. As of this year, the company has increased its annual dividend rate for 67 consecutive years. As one of the longest growing dividend payers in the market, P&G will do its best to maintain this uninterrupted annual dividend growth.

Perhaps more important than P&G's dividend track record is the company's ability to pay these dividends without jeopardizing its ability to invest in its own growth. For fiscal year 2023, which ended last June, P&G earned $5.90 per share and paid a dividend of just under $3.68. 62%'s dividend payout ratio validates P&G's ability to make enough profit to provide it with some financial flexibility, even to fund a stock purchase.

P&G stock has a high dividend yield of 2.3%, so newcomers can take advantage of the opportunity to buy. AndS&P 500The Index's current dividend yield is 1.35%.

weighing the pros and cons

There are downsides to owning P&G. Weak growth is a big one. This year's projected growth of 3.4% and next year's 3.9% are actually long-term benchmarks for P&G; surely you can find a faster-growing stock. This stock is not cheap either, at 25 times this year's projected EPS.

Just remember the big picture. Investors can expect, and should be willing, to pay a premium for a solid, quality option and a strong dividend payer. P&G could be just what your portfolio needs right now.

Should you invest $1,000 in P&G now?

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James Brumley does not own any of the stocks listed above.The Motley Fool has a position in Target.The Motley Fool recommends Kroger and Unilever Plc.The Motley Fool has a disclosure policy.

3 Reasons to Buy P&G Stock Like There's No Tomorrow was originally published by The Motley Fool.