It was a turbulent week for Procter & Gamble (PG 0.66%)which fell as much as 6% in response to fourth-quarter fiscal 2024 results, only to recoup those losses and rise to an all-time high. This is a lesson in why knee-jerk reactions to quarterly results can be misleading.

Here’s a breakdown of P&G’s current situation, its expectations for fiscal 2025, and why the dividend stock is worth buying now.

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Titans of Dividend Growth

Coke is one of the most well-known dividend stocks around. It has paid and increased its dividend for 62 consecutive years, making it a Dividend King. Dividend Kings have at least 50 consecutive years of dividend increases. Coca-Cola stock just hit an all-time high as it maintains high margins and works to increase sales.

The beverage king pays around 8 billion dollars in dividends annually – making it one of the highest dividend payouts in the S&P500. But it still doesn’t pay as much as Procter & Gamble. In April, P&G raised its dividend by 7% — the 68th consecutive year it has increased its dividend, making P&G one of the longest-running dividend kings.

In fiscal 2024, P&G paid $9.3 billion in dividends and made $5 billion in share repurchases. In its most recent earnings report, P&G provided guidance for fiscal 2025 that calls for a whopping $10 billion in dividend payments and $6 billion to $7 billion in share repurchases. The guidance suggests that another sizable dividend increase could be on the way and that P&G believes it can support a growing capital return program.

The pace at which P&G is increasing its dividend is a clear vote of confidence for passive income investors. P&G is very aware of the importance of its dividends and buybacks to its investment thesis. Investors expect annual dividend increases, meaning that every time P&G increases its dividend, it raises the bar for the following year’s commitment.

For Dividend Kings, dividend increases work like compound interest. A 7% increase may not sound like much at first glance – but 7% of $9 billion is $630 million. The difference in dividend spending from one year to the next is basically the amount of extra profits P&G needs to generate to maintain the same payout ratio. That’s a tall order – which is why there are only about 50 Dividend Kings – and very few of them have as attractive a dividend or buyback program as P&G.

P&G continues to focus on margins

Procter & Gamble’s forecast for fiscal year 2025 paints a rosy picture of dividend development. However, long-term investors should ask themselves whether the company can really maintain this pace of increases or whether P&G will face pressure in the future. P&G’s earnings growth has – admittedly – been quite disappointing in recent years.

Diluted PG EPS data (annual) by YCharts

As the chart shows, the dividend has been steadily increasing, but earnings are only slightly higher today than they were in fiscal 2017. However, P&G still has a reasonable payout ratio and generates plenty of additional earnings to support its buyback program and reinvest in the business. There is also reason to believe that P&G is headed in the right direction to support future earnings growth.

P&G underwent a significant turnaround between fiscal years 2015 and 2017, reducing the number of its brands by around 60%. The goal was to focus on the best brands and improve margins – even at the expense of sales. The strategy was a complete success.

Today, P&G is a high-margin cash cow that focuses more on profitability than revenue. This chart illustrates how much P&G’s revenues declined during the restructuring and shows how significantly margins improved and how much the company has experienced revenue growth in recent years.

PG revenue data (annual) from YCharts

As for the company’s current situation, P&G has successfully raised prices to combat inflation in recent years. However, sales have been sluggish, which has impacted growth. Despite stagnant volume growth, P&G only achieved organic sales growth of 4% in fiscal 2024. For fiscal 2025, the company only expects organic sales growth of 3-5% and core earnings per share growth of 5-7%.

The forecast is OK, but not great. However, P&G provided some additional information in the earnings call. The company expects the first half of fiscal 2025 to be similar to fiscal 2024, but is confident it can accelerate volume growth again and maintain or expand margins.

In other words, P&G is making a strategic decision not to drastically cut prices at the expense of margins just to drive sales growth. This is a very different strategy than companies like MC Donalds or PepsiCothat appeal to price-conscious consumers with their affordable options. P&G could slow the pace of price increases, but it is unlikely that the company will boost volume growth through broad price cuts.

P&G is a super-safe dividend stock to buy now

There are plenty of options with higher yields than P&G, which yields just 2.4%. And with a price-to-earnings ratio of 28.3, P&G is quite expensive compared to other, more value-oriented options in the consumer staples sector. Still, P&G continues to prove why it’s worth the higher price.

First, it’s important to understand that P&G could be earning a yield of nearly 4% if it didn’t buy back shares. But share buybacks are a core element of the capital return program and have been instrumental in reducing the number of shares outstanding and keeping P&G a decent value despite the strong performance of its share price.

P&G also has incredible pricing power, as demonstrated by management’s confidence that the company can maintain high margins and gradually increase sales without having to completely rethink its strategy due to low consumer spending.

With P&G stock near an all-time high, investors will certainly have to pay more for it. But if you’d rather buy a high-quality company at an expensive price than a mediocre company at a great price, then P&G is worth a closer look.