The Procter & Gamble Company (PG): Procrastinators Can Still Join the Party in This Stock

The key about each of these companies is that they earn stable free cash flow margins. Except in exceptional years, the companies’ free cash flow margins oscillate between one to two percentage points of the long-term average. This indicates that each company has a high degree of control over its margins, suggesting a high degree of pricing power.

Investment case

Since each firm earns a consistent free cash flow margin, we can calculate no-growth free cash flow by applying each firm’s 10-year average free cash flow margin to trailing twelve months sales. Doing so gives us no-growth yields between 4% to 5% for all three companies.

However, each company will likely grow at least as quickly as the United States economy — and probably a little faster due to operations in emerging markets. As a result, a long-term growth rate of 2% to 3% is a reasonable estimate for these wide-moat companies.

Therefore, investors who buy The Procter & Gamble Company (NYSE:PG), Colgate-Palmolive Company (NYSE:CL), and Unilever plc (ADR) (NYSE:UL) at current prices will likely receive a 6% to 8% compound annual return on investment over a five-year holding period. Not bad for entrenched companies in an overheated market.

The article Procrastinators Can Still Join the Party in This Stock originally appeared on Fool.com.

Ted is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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