How a Slimmer Procter & Gamble Might Fare in 2017

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The Dow Jones Industrial Average closed out 2016 at 19,762.60 on December 30. It may not have hit the elusive 20,000 mark, but it ended the year with a gain of 13.4% from the 17,425.03 close on the last trading day of 2015. This was quite close to the 24/7 Wall St. forecast of 19,700, but we still have a case that can be made for up to Dow 22,000 late in 2017. The S&P 500 closed the year at 2,238.83, up 9.5% from the 2,043.94 close of 2015. The Nasdaq closed at 5,383.12, for a gain of just 7.5% from the 5,007.41 close at the end of 2015.

Procter & Gamble Co. (NYSE: PG) has been right-sizing its number of brands in a restructuring and divesting process, but this defensive consumer products giant generated a return of 9.4% and ended the year at $84.08 a share. It has a consensus analyst price target of $90.72, and the 7.9% in implied upside would generate an implied total return of 11.1% if you include the 3.2% dividend yield.

P&G closed out 2016 in a virtual tie with Merck & Co. Inc. (NYSE: MRK) for the last spot on our list of the Dogs of the Dow.

Back in the third quarter of 2016, hedge funds paid $8.9 billion to boost their holdings of P&G stock. The stock was hedge funds’ top purchase in the third quarter. As a group, the hedgies’ consumer staples purchases totaled $12.2 billion in the quarter, likely as a position hedging against volatility ahead of the November elections.

In October, P&G transferred its specialty beauty products business to Coty Inc. (NYSE: COTY). A slimmer portfolio is expected to pay off for investors as the company now focuses on 10 product categories where it has about 65 category-leading brands.

For P&G’s 2016 fiscal year ended last June, the company was able to reduce costs by 11% year over year to help overcome a strong dollar and drive earnings per share higher by 7% compared with fiscal 2015.

The company is one of the Dividend Aristocrats, stocks that have raised dividends every year for at least 25 years. In fact, it has paid a dividend every year since its incorporation in 1890. The company is the very definition of a defensive stock.

Procter & Gamble has a 52-week trading range of $74.46 to $90.33 and a market cap of over $225 billion. Its dividend yield is 3.2%.