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Stock Strategist

P&G's Pullback Is Investors' Potential Gain

The wide-moat company is working to boost sales as well as profitability.


We think the pullback in  Procter & Gamble’s (PG) share price has created an even more attractive entry point for long-term investors. Beyond the attractive valuation, shareholder returns stand to be enhanced by a 3.5% dividend yield. We believe returning excess cash to shareholders will remain a priority and forecast mid- to high-single-digit dividend growth over the next 10 years.

Top-line growth across the industry remains elusive. Despite the market’s seeming lack of confidence, we believe the benefits of P&G’s more focused investments should yield improvements across its product mix, bolster sales and volume growth, and subsequently strengthen the brand intangible asset source of its wide economic moat. We believe P&G is poised to increase underlying sales at a 4% clip longer term, with nearly two thirds of its annual growth from increased volume and the remainder from higher prices and improved mix. But we don’t think these top-line gains will come at all costs; rather, we think P&G is working to reignite sales while also beefing up its profitability. We expect its current $10 billion cost-saving effort will lead to 500 basis points of operating margin gains, yielding a 24% margin over the next 10 years, and fuel spending behind product innovation and marketing to combat competitive pressures.

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Erin Lash does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.