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Where Will Procter & Gamble Be in 5 Years?

Demitrios Kalogeropoulos, The Motley Fool

Procter & Gamble (NYSE: PG) shareholders have witnessed plenty of changes in the company since 2014. It was roughly five years ago that it embarked on a huge transformation that's only recently started to show significant results. After shedding over 100 brands, reinventing its supply chain, and slashing costs, the consumer packaged goods titan is finally on track to deliver a strong fiscal year that pairs healthy earnings with robust sales growth.

There's no telling how sustainable this rebound will be as economic conditions shift in P&G's key global markets over the next five years. Yet there are a few things that long-term investors can be reasonably confident about.

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Image source: Getty Images.

Modest revenue growth

It's likely that P&G will grow at a slower pace than it has during the past year. That's mainly a consequence of sluggish demand in the broader consumer packaged goods industry. Rival Kimberly Clark (NYSE: KMB) recently projected that the market will inch along with a modest annualized growth rate of around 2% between now and 2022. Its management team thinks it may be able to outperform that pace, with a growth forecast for the company of between 1% and 3%.

P&G might do slightly better than that, but investors shouldn't expect to see a fiscal 2020 repeat of what is expected to be a 4% sales spike for fiscal 2019. The company will issue its official outlook after the close of its fiscal fourth quarter on June 30, but CFO Jon Moeller in late April suggested that a slowdown could be in the cards. "We expect a strong competitive response" to the sales momentum P&G created, Moeller explained. Other likely drags on the company's growth include weak demand in pockets of the portfolio, rising costs, and the ongoing shift toward the online selling channel.

Put it all together, and the odds are that P&G will be growing its organic sales in the low single-digit-percentage range, generally in line with its performance over the last few years.

Financial leadership

While there's plenty of uncertainty about its revenue, P&G is highly likely to generate strong bottom-line returns between now and 2024. After all, its cost structure is one of the lowest in the industry, and the company benefits from unique assets such as a massive global sales base and a highly efficient supply infrastructure. The value of these competitive strengths to investors is amplified by the company's aggressive cash-return posture. Over the past decade, P&G has generated more cash than almost any other public company. And only a handful of companies have returned higher percentages of their cash to shareholders through dividends and stock repurchases.

These factors suggest investors will reap robust total returns over the next few years. True, the company is unlikely to continue growing earnings per share at the 14% rate management is targeting for fiscal 2019, but it's reasonable to expect profits will expand at a near double-digit pace. These gains will be supplemented by a dividend that's about as close to a sure bet as income investors will find. P&G has raised its payout in each of the last 63 years. Investors' most modest increase lately was 2016's 1% boost, and while the days of double-digit hikes are likely gone, the company has the financial firepower to easily grow its dividend by 3% to 5% annually through 2024.

Is the stock for you?

The broad strokes of this analysis paint a picture of a stock with many attractive characteristics that, nonetheless, isn't right for every investor. However, if you're looking for a stable dividend payer that can grow in a tough, competitive industry, then P&G is a great candidate for your portfolio, and an investment you could hold for years.

It should perform a bit better than peers like Kimberly Clark and Unilever (NYSE: UL), but that still might only amount to annual organic growth of around 3%. In my view, that makes P&G stock the kind of investment that can fit into many portfolios, as long as investors have conservative expectations going in.

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Demitrios Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool is short shares of Kimberly Clark and Procter & Gamble. The Motley Fool has a disclosure policy.