10 Billion Reasons To Own This Recession-Proof Stock
With concerns of an impending recession looming large and Goldman Sachs pivoting away from momentum stocks to value stocks, one stock that may fit the bill is Procter & Gamble.
Although the share price has been somewhat volatile subsequent to fiscal Q4 2024 earnings results, P&G bounced back nicely to make an assault on all-time highs. It reveals just how resilient the company is in the face of an increasingly cloud economic environment.
Yet Procter & Gamble has a lot more going for it than a steadily climbing share price. Over the past 68 years it has consistently raised its dividend, a feat accomplished by very few other firms. Warren Buffett favorite, Coca Cola, is a rare rival in this category.
But there is another tailwind under the surface that may well support this stock even if a recession hits as Goldman forecasts with 25% probability.
Key Points
- Despite recent volatility, Procter & Gamble has rebounded towards all-time highs and has consistently raised its dividend for 68 years.
- P&G plans to increase share buybacks to $6-$7 billion and dividends to $10 billion in fiscal 2025, reflecting strong management confidence.
- Management’s focus on high-margin products has led to margin expansion and 4% organic sales growth in fiscal 2024, with expectations of continued growth in 2025.
Hidden Tailwind Supports P&G
One support mechanism a management team can orchestrate to support a share price is a buyback and in the case of P&G it’s a big one.
In fiscal 2024, P&G authorized $5 billion in share repurchases and what’s better is it plans to boost this to between $6 and $7 billion over the coming fiscal year.
For shareholders, the spoils keep coming because the company paid $9.3 billion in dividends this fiscal year and plans to increase that to $10 billion next year.
paid $9.3 billion in dividends and made $5 billion in share repurchases. The company plans to increase dividends to $10 billion and stock repurchases to $6-$7 billion in fiscal 2025.
The increase clearly signals confidence among management that the business model will be sturdy enough to thrive during any impending recession. Despite earnings growth being modest in recent years, P&G maintains a reasonable payout ratio and generates sufficient earnings to support both dividends and share buybacks.
Is P&G a Buy?
A concerted effort was made by P&G some time ago to reduce brand count and focus on profitability over sales. The net result was significant margin expansion. By prioritizing high margins over aggressive sales growth, P&G has raised prices to combat inflation, leading to 4% organic sales growth in fiscal 2024.
Going forward, P&G has a few other things in its favor. It has a perfect Piotroski score suggesting rock solid fundamentals. The dividend of 2.37% isn’t overly compelling but is sufficient to attract income investors. And profitability and cash flows are expected to be abundant. Plus, management expects 3% to 5% organic sales growth and 5% to 7% core EPS growth for fiscal 2025
The bottom line is P&G’s strong pricing power, focus on margins, and consistent dividend growth make it a high-quality business holding for the long-term for any investor concerned about riding out a wave of volatility and an impending recession.
