Ongoing inflation forces most consumer goods companies to make unpopular decisions, leading to unpredictable and disappointing results.
An entire stock class may have fallen out of favor due to the huge preference for artificial intelligence names.
However, a reversal of these two dynamics is coming.
10 stocks we like better than Procter & Gamble ›
Does your portfolio need reliable dividends but don’t want to pay too much for a yield that’s too low? Today, this is a difficult task. The rapid rise in artificial intelligence (AI) stocks has driven many stocks’ valuations to unusually high levels, lowering their relative dividend payouts.
Not every name suffers from this phenomenon, though. If you’re willing to give up a little growth potential and a lot of excitement, you can get into some solid “forever” dividend payers at excellent prices today. One of the best stocks right now is Procter & Gamble(NYSE: PG).
Image source: Getty Images.
You’ve definitely heard of this company. You may not realize the breadth and depth of its presence in consumer products. Procter & Gamble is the name behind Tide laundry detergent, Gillette razors, Dawn dish soap, Crest toothpaste, Pampers diapers, Bounty paper towels and more. It’s not just the world’s largest consumer staples brand in terms of revenue and market capitalization, with revenue of $84.3 billion in the fiscal year ended in June. Several of its products dominate their respective categories. It is much easier to maintain leadership in a specific market than to overthrow the market leader.
Of course, sheer size can also be detrimental to a company. Greater size often not only means greater business complexity, but it also yields larger year-over-year comparisons that make growth look less meaningful.
This is arguably one of the main reasons why P&G shares have performed so poorly since November 2024, down 20% from their peak – the company has been forced to adopt a fairly aggressive strategy in an inflation-plagued environment where consumers are paying more attention to price when shopping (not to mention an environment that now provides them with easier choices). That, in turn, led to more quarterly revenue and profit shortfalls that lasted far longer than expected when the headwinds first started blowing.
The problem is, this cyclical headwind is likely nearing its end. Meanwhile, P&G’s dividend never faced any real danger. That’s why the stock’s long-term weakness is definitely a buying opportunity for true long-term income investors.
P&G’s foreseeable future may remain difficult to navigate. However, now more than a year into the proverbial challenge, management has clearly figured out how to do this.
Meanwhile, the underlying inflation that has been plaguing P&G appears to finally be easing as economic growth accelerates. The Fed forecasts that annualized U.S. inflation will fall from about 3% last year to just over 2% in 2027 and remain at that level through 2028. Following a surprisingly strong growth forecast of 4.3% in the third quarter, Fed governors expect U.S. GDP growth to increase from an average of 1.7% in 2025 to around 2.2% this year. Where should it remain next year. Outside the United States, where P&G conducts about half its business, the World Bank calls for global GDP growth of 2.6% in 2026 (roughly in line with last year’s progress), helped by moderate inflation.
These seemingly small numbers are actually quite large to P&G’s price-conscious customers.
The irony? While Procter & Gamble may have posted some disappointing quarterly results recently, the company actually managed to find ways to expand its profit margins during this tumultuous time.
Data comes from YCharts.
Perhaps more importantly for income-focused investors, all of these dynamics provide support for P&G’s already well-supported dividend payments. Earnings per share for the last fiscal year were $6.51, of which only $4.08, or 63%, was distributed in the form of dividends. In fact, the company has not only been paying dividends on time for 135 consecutive years, but it has also been able to increase its annual dividend payout level every year for the past 69 years. And the magnitude is more than just a little bit. It has grown nearly 5% annually over the past decade, easily outpacing inflation over that period. Both winning streaks show no end in sight.
Considering the company’s stature, and the stock’s current above-average forward yield of 3%, it’s surprising that P&G stock has been able to fall so far over the long term. On the other hand, slower-growing value stocks like this may also have fallen out of favor in an environment where investors can’t seem to get enough to invest in faster-growing AI stocks.
However, both dynamics set the stage for better performance from P&G stock going forward.
This stock is more than just a way to capitalize on a short-term return to long-term normalcy. P&G has a long history of solid, risk-adjusted performance, ultimately stemming from the nature of its products and its dominance across multiple consumer product categories. The entry opportunity is temporary, as it would be unusual for this stock to drop so much over an extended period of time.
Even though we don’t know whether Procter & Gamble’s stock price has reached its ultimate low, don’t overthink it. This discount is enough for you to dive into it now.
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James Brumley works for Procter & Gamble. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
1 S&P 500 Dividends Down 20% Buy and Hold Forever Originally Posted by The Motley Fool
