Why Billionaire Bets Biggest On This Stock

Ray Dalio is an American billionaire, investor, and hedge fund manager. His largest holding is P&G, represented by over 6.6 million shares, is worth over $1 billion. He is a strong advocate for diversification, spreading his portfolio across various currencies, industries, and asset classes. So why Procter & Gamble?
Sure, P&G has developed and promoted well-known and reputable brands that are staples, such as Pampers, Bounce, Tide, Tampax, Old Spice, Febreze, Crest but why did Dalio make it the biggest holding in his portfolio?

Reasons to Buy P&G

Procter & Gamble is poised to provide sustained returns to its shareholders, particularly in the face of potential economic downturns. This is evident in the company’s commitment to consistently raising its dividend each year (the upcoming 67th consecutive year of dividend increase in mid-April).

Having a steady stream of income in your investment portfolio can aid in protecting it during difficult market conditions. While market-beating returns in the short-term are certainly an attractive reason to consider this stock, it is also a wise choice for long-term investors.

P&G has a demonstrated track record of achieving a harmonious balance between income generation, earnings power, and growth. Over the last five years, the company’s shares have risen by nearly 70%, and since its inception, shares have appreciated by an impressive 44x.

Upon scrutiny, Procter & Gamble’s financial performance is highly encouraging. The company’s 2022 annual report reveals a consistent upward trend in net sales every year since 2018, reaching a total of $80.2 billion this past year.
This strong performance supports a dividend per share of $3.52. The greatest contributor to this success is the fabric and home care segment, accounting for 35% of the total, followed by the baby, feminine, and family care segment at 25%.
Additionally, the company achieved an impressive 7% growth in organic sales, contributing to a cumulative increase of 19% over the last three fiscal years (2020, 2021, and 2022).
Nearly $19 billion of value was returned to shareholders, including $8.8 billion in dividends and $10 billion in share repurchase.
Other reasons to buy shares of P&G:
  • The company holds a significant market share and has a wide moat
  • Healthy, sustained profit margins, which help insulate against downturns
  • Proven record of returning cash to investors, earning it the title of Dividend King
  • The company continuously reinvests in research and development, supporting brand strength
The pros are obvious but what about the risks?

Challenges P&G May Face in 2023

The current macroeconomic climate may raise certain concerns for Procter & Gamble; it is not immune to the volatility in costs, consumer behavior, and currencies that are impacting companies across the board. However, these hurdles are likely not detrimental to P&G’s long-term growth prospects.

To mitigate the impact of rising costs, the consumer staples company is reportedly looking to implement price increases. Famously a company that has pricing power in recessions tends to thrive, according to Buffett.

Additionally, the company is exploring new technologies like Artificial intelligence and blockchain to digitize manufacturing lines for further efficiencies. Nevertheless, if there is a weakness in sales volume, the company may face additional pressures. With so much uncertainty in the economy, many consumers may become more cost-conscious and selective in their spending.

For investors who are focusing on cash returns, it’s worth noting that late 2023 may see lower returns due to a variety of factors, including slowing growth, increasing costs, and fluctuations in currency exchange rates.

On the positive side, P&G has a reputation for effectively converting earnings into free cash flow. The company’s projected free cash flow productivity rate of 90% will be beneficial in meeting its goals of distributing $9 billion in dividends and repurchasing $6 billion to $8 billion in common shares in fiscal 2023.

Should You Buy P&G?

When the economy starts to recover, P&G’s performance may not compare favorably to high-growth stocks, particularly those in the technology sector. However, if your goal is to find a reliable stock that can withstand market fluctuations over the long-term, P&G is a solid choice. The company has proven to be a resilient option during bear markets.

While the company’s performance is not completely insulated from broader market trends, its revenue is relatively stable and investors can expect a respectable dividend yield. P&G is not a stock that will make you a fortune overnight, but it is a lower-risk option that historically has offered higher returns than bonds. When constructing a diversified portfolio, P&G is a suitable candidate to include.