With those factors in mind, let’s take a closer look at Procter & Gamble.
| Factor | What We Want to See | Actual | Pass or Fail? |
|---|---|---|---|
| Size | Market cap > $10 billion | $210 billion | Pass |
| Consistency | Revenue growth > 0% in at least four of five past years | 3 years | Fail |
| Free cash flow growth > 0% in at least four of past five years | 2 years | Fail | |
| Stock stability | Beta < 0.9 | 0.44 | Pass |
| Worst loss in past five years no greater than 20% | (13.8%) | Pass | |
| Valuation | Normalized P/E < 18 | 26.36 | Fail |
| Dividends | Current yield > 2% | 2.9% | Pass |
| Five-year dividend growth > 10% | 10.2% | Pass | |
| Streak of dividend increases >= 10 years | 56 years | Pass | |
| Payout ratio < 75% | 49% | Pass | |
| Total score | 7 out of 10 |
Source: S&P Capital IQ. Total score = number of passes.
Since we looked at Procter & Gamble last year, the company has lost a point, as a drop in revenue broke the company’s sales-gain streak. The stock is up about 15% over the past year despite the challenges the company has faced recently.
Procter & Gamble is a classic defensive stock. By offering so many products that billions of customers need around the world, P&G gives investors a buffer against changes in economic conditions that have more dramatic impacts on stocks in other industries.
But from an investing standpoint, Procter and consumer-giant peers Kimberly Clark Corp (NYSE:KMB) and Colgate-Palmolive Company (NYSE:CL) don’t look as attractive as they often do, because their valuations have risen sharply. The overall demand for dividend stocks and some recent skittishness in the market after its four-year bull run have pushed the earnings multiples of Kimberly-Clark and Colgate-Palmolive above 20, and although those smaller rivals arguably have better growth prospects than P&G, they nevertheless are in an industry that’s known more for sales stability than massive growth.
Still, P&G has soared following its most recent quarterly report. Despite margin pressure from high commodity costs and the impact of Venezuela’s decision to devalue its currency, the consumer goods giant is looking to reinvigorate its product-offering pipeline, addressing some of the concerns activist investor Bill Ackman has raised.
For retirees and other conservative investors, P&G’s fairly high valuation is somewhat problematic. But with peers in the space fetching similarly high multiples, retirement investors may nevertheless want to consider giving Procter & Gamble a place in their retirement portfolios.
The article Will Procter & Gamble Help You Retire Rich? originally appeared on Fool.com and is written by Dan Caplinger.
Fool contributor Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Kimberly-Clark and Procter & Gamble.
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