3 Reasons Procter & Gamble Co. Stock Could Rise

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Procter & Gamble (NYSE: PG) shares are back up above $90 and so far have kept pace with the broader market in 2017. Below, we'll look at a few trends in the business that could turn that steady growth into a more substantial rally.

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Market share growth

P&G's revenue growth pace is inching higher, with organic sales set to expand by 2.5% this fiscal year compared to 2% last year and 1% the year before. The consumer products giant has even managed to add distance between itself and rivals on this score. Kimberly-Clark (NYSE: KMB), whose Huggies diaper brand competes against P&G's Pampers, recently lowered its full-year organic growth forecast to flat.

Procter & Gamble hasn't ended its years-long market share slide yet, though. It lost ground in each of its core product divisions for the third straight year in fiscal 2017, including in the Gillette franchise, which has dipped to 65% of the global market for razors and blades from 70% in 2014.

Management recently made a few big changes to the shaving portfolio, including aggressive price cuts aimed at elbowing rivals out of the way. As a result, the segment ticked higher last quarter after eight straight quarters of declines. P&G needs that early momentum to gain steam and be reflected across its biggest brands before it can once again can claim increasing overall market share.

Profitability spikes

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CEO David Taylor and his team have executed well around removing costs and increasing efficiency. In fact, P&G slashed over $10 billion out of its cost burden in the past five years. Investors haven't seen much direct impact from these cuts since they've been offset by foreign currency swings and sluggish sales growth. The moves are pushing profitability higher, though, as core operating profit margin has improved by 2 full percentage points since 2012.

P&G believes it has room to cut an additional $13 billion of expenses over the next few years, which should ensure that it stays well ahead of peers on profitability. Unilever (NYSE: UL), for example, is aggressively cutting costs in hopes of reaching P&G's 20% margin, but doesn't believe it will reach that mark until at least 2020. Kimberly-Clark is expecting to axe over $400 million from its expenses this year yet still trails P&G by a wide margin. Maintaining this advantage should help P&G invest in advertising and marketing support while also delivering faster earnings growth.

Dividend gains

With $22 billion sent to shareholders in just the past year, no one would accuse Procter & Gamble of being stingy with its capital return program. However, that initiative has leaned heavily on surging stock repurchase spending while leaving dividend growth behind. P&G spent $13 billion on reducing its share count last year, compared to $7 billion on dividends. Its recent dividend increases have been underwhelming, too, at 3% in 2017 and just 1% in 2016. 

P&G's reported earnings have stabilized now that the impact of currency swings and brand divestments aren't hurting results as much. That should give management more room to boost the annual payout. Sure, P&G is already yielding a market-thumping 3%. However, with the payout ratio back below 50% after spiking to above 100% in 2015, the company can afford raises that are closer to the 5% increase Kimberly-Clark just gave its shareholders. A stronger, faster-growing dividend should make this stock more attractive to investors, especially if it is supported by accelerating sales and profit gains.

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Demitrios Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool recommends Unilever. The Motley Fool has a disclosure policy.