Should You Buy Shares in the Super-Safe Dividend King Stock That Expects to Return at Least $16 Billion to Shareholders in Its Fiscal 2025?

Many investors gravitate toward dividend stocks for a reliable source of passive income, no matter what the stock market is doing. But a dividend is only as reliable as the company paying it, which is why Dividend Kings are so impressive.

Dividend Kings are companies that have paid and raised their dividends for at least 50 consecutive years. To do that, a company must have solid earnings growth and financial stability.

Procter & Gamble (PG -0.37%) is the elite of the elite. Not only is it one of the longest-tenured Dividend Kings, with 68 consecutive years of payout increases, but P&G also repurchases a ton of its stock.

The consumer staples giant just reported first-quarter fiscal 2025 results. For the full fiscal year, it expects to pay a whopping $10 billion in dividends and repurchase $6 billion to $7 billion in stock. Here are some key takeaways from P&G's report, some concerns worth monitoring, and why P&G remains an exceptional dividend stock to buy now.

Image source: Getty Images.

Volumes and product mix continue to be concerning

P&G's latest results were decent but not great, with a 12% increase in diluted net earnings per share (EPS) but just 2% organic sales growth and flat volume growth. This dynamic pretty much sums up the last few years for P&G, which has displayed impeccable pricing power even in the face of inflationary pressures, but hasn't been able to return to volume growth.

P&G's product mix was -3% in its beauty and grooming categories; flat in baby, feminine, and family care; up 1% in fabric and home care; and up 4% in healthcare. Product mix essentially tells investors if buyers are gravitating toward lower-priced product offerings or paying up for more premium-priced brands. For example, P&G owns several laundry detergent brands, including Gain and Tide. If consumers switch from Tide, which is generally the most expensive of P&G's detergent lineup, to Gain, then P&G still retains the sale, but mix would be negative.

P&G's variety of top brands across different categories is an advantage over companies that only have one brand in a category. But the fact that P&G is still experiencing negative mix in some categories shows that consumers remain disciplined with their spending.

On track for a record year

Despite the headwinds, P&G's fiscal 2025 guidance is fairly impressive. It expects 2% to 4% sales growth, but 10% to 12% diluted net EPS growth compared to $6.02 in fiscal 2024 diluted EPS. If P&G achieves the midpoint of that guidance, it would earn $6.68 in fiscal 2025 diluted EPS, which would be all-time high earnings.

As mentioned, P&G plans to return $16 billion to $17 billion to investors. Its $10 billion dividend expense implies a significant increase compared to last year and is the result of the 7% dividend increase the company announced in April.

Here's a look at P&G's capital return program over the last decade. Add up the total capital returned during this period, and you'll get $147.8 billion -- which is more than the combined market caps of Nike and Dollar General. 

Data source: YCharts.

As you can see in the table, P&G bought back considerably more stock in fiscal 2022 and fiscal 2021 than it has in recent years or plans to buy back this fiscal year. That makes sense, given the business was growing faster than it is today.

Still, even during what will most likely be a mediocre year, P&G generates plenty of earnings to fund its massive capital return program. And that leads us to P&G's most significant advantage.

The snowball

P&G develops brands, reinvests in the business, and occasionally makes acquisitions. Its focus is on passing profits directly to shareholders through buybacks and dividends. The chart shows the impact of these decisions over time.

PG EPS Diluted (TTM) data by YCharts

Over the last decade, P&G has reduced its outstanding share count, which has allowed it to grow earnings at a faster pace than net income. It has also increased its dividend by over 56%. Despite the increases, P&G only has a 2.4% dividend yield -- but that is mainly because the stock has performed so well over the long term.

P&G's recession-resilient business model, the track record for dividend raises, and the combination of dividends and buybacks make it an ultra-high-quality dividend stock. P&G is a good example of why looking at yield alone is a mistake. While the company's yield isn't going to light up the radar gun, the stock has produced impressive gains, with a 167.7% total return over the last decade compared to a 134% total return for the consumer staples sector.

There's no shortage of stocks that yield more than P&G, but very few companies have a superior capital return program.

P&G is worth the premium price

Even with weak sales growth, P&G is still growing earnings at a solid rate and returning tons of capital to shareholders. The only downside about buying the stock now is that P&G sports a 29.3 price-to-earnings (P/E) ratio, which is well above its historical valuation. Over the last three to 10 years, P&G's median P/E ratio has ranged from around 25.5 to 26.3. So, investors are certainly paying up for quality right now.

The good news is that if P&G does grow earnings by the projected 11% in fiscal 2024 (and the stock price goes nowhere), the P/E ratio will be back around the historical median.

All told, P&G isn't a screaming buy, but it isn't egregiously overpriced for investors looking to scoop up shares in a top-tier Dividend King and hold those shares over the long term.