Good Reason to Like PG Stock
Turning away from the constant noise surrounding the stock market, Procter & Gamble Co (NYSE:PG) stock is working its way to an all-time record high. The position has more to go, but the performance of this Dow component matters, even if this solid dividend stock isn’t on your radar.
A lot of traditional “widow and orphan” stocks have been pushing higher in this market. This is not surprising, of course, due to the tremendous monetary stimulus the last several years.
But even in the case of Procter & Gamble, Wall Street earnings estimates are ticking higher on a go-forward basis. This matters because the stock market is a forward-looking pricing mechanism; investors don’t bid on the past.
No matter what view you subscribe to, consumer staples are breaking out in this market from quite a long period of flat action. While this can be viewed as a flight to safety on the part of institutional investors, I view it more as bull market confirmation. No doubt, this isn’t the beginning of a new bull market, but I see current action more so as the end of the beginning of a secular bull market in U.S. equities. A breakout out in consumer staple stocks is highly significant.
And it’s not just Procter & Gamble stock. Colgate-Palmolive Company (NYSE:CL) and Clorox Co (NYSE:CLX) are also pushing new highs with strong dividend growth and rising Wall Street earnings expectations.
Naturally, this isn’t exciting stuff, but the performance of such stalwart benchmarks is useful market intelligence. Apple Inc. (NASDAQ:AAPL) stock may not be going up right now, but the fact that Procter & Gamble and other consumer staples are brings assurance to current market action.
Procter & Gamble stock is yielding just over three percent and is in the same boat as many U.S. multinationals. The company’s most recent quarter, its 2016 second fiscal quarter, saw total sales drop about nine percent comparatively due to global currency translation to $16.9 billion. Organic sales, which exclude currency woes and acquisitions/divestitures, produced a comparative sales gain of around two percent.
But PG stock’s story is all about profits, which produced diluted earnings per share growth of 37% to $1.12 in the latest quarter. Core earnings per share (excluding charges/gains) improved nine percent comparatively.
The Bottom Line on P&G Stock
Along with the company’s dividend and relatively stable outlook, it’s not unreasonably to see why institutional investors have been bidding this consumer staple.
This year, we’re only going to get low single-digit total sales growth at best with U.S. multinationals. But balance sheets remain strong and the costs of capital are still low, which means that the prospect for rising dividends, more share repurchases, and good earnings per share growth remains robust. At the end of the day, this is what institutional investors wish to pay for.
Year-to-date, Procter & Gamble stock has handily beat the S&P 500 Index. But the stealth strength in consumer staples isn’t just about a flight to safety; it’s a maturation of the bull market and it is a positive signal to the broader market.