Thread by @TCII_Blog

When you look at Procter & Gamble's stock return history, it is clear that it has entered the "resilient slow-grower" stage where valuation is particularly important for total returns. If you buy the stock for 16x earnings or less, you get total returns of 12%.

But if you pay 25x earnings, as is the valuation right now, you get..7.5% annual returns. Over time, that is a very big difference. People who bought in the late 1990s have only tripled their money through today, and that benefits from the high valuation level of today.

What happened? Well, Procter & Gamble stock loaded up on debt between 2010-2018 to retire 500 million shares through buybacks to hide the fact that it struggles to maintain volume when it raises prices. When Tide raises prices 6%, sales go down 2%, then take time to move forward.

This is in comparison to a truly great business like Disney, which raises prices 10-13% at its theme parks annually and still has record-breaking demand.

Also, if you look at Procter & Gamble's brand profile, it appears that P&G doesn't know what to do with Gillette. It's become a political football, but the point is that Gillette razors once ruled the world but now they're just the key participant.

Also, there is what commodity inflation. Management brags on sales calls about 7% revenue growth lately, which sounds really nice and impressive given its size, but...commodity costs have risen 5.5%. That is how a great business behaves, but is not how a perfect business behaves.

Procter & Gamble is a fantastic stock if you are wealthy and want to protect what you got and moderately grow purchasing power. But it is not a get rich quickly stock. And arguably, you'd need to buy at $90 or lower for it to be a get rich in 20 years stock.

That said, its earnings power is incredible. Recessions happen, and P&G's earnings hold steady. They always have. The products are indispensable, frequently purchased, and there is pricing power even if it is a bit weaker than it used to be.

From 2021 to 2031, I'd expect 6-8% annual returns. The current price of $144 is just too high in comparison to what happens to sales when P&G raises prices against commodity costs that are rising nearly identically.

To end on a positive note, the dividend has tripled since 2000 and I would expect 4-7% long-term growth from the dividend. If you are looking hundreds from this holding (or more!), it will go up each year for life. That has real-world/household-prosperity value.