1 Magnificent Dividend Stock Down 8% to Buy and Hold Forever

We all want to see our stocks go up in perpetuity. But even the best companies don't see their share prices rise in a straight line.

When they go down, that doesn't mean you should necessarily rush in to buy. But it's an opportunity to check out their stories. If the long-term investing thesis remains intact, it's a buying opportunity.

It also makes it easier when the companies pay regular dividends. That means you're getting paid to wait for the stock's fortunes to improve.

Procter & Gamble (NYSE: PG) has not only paid dividends for well over 100 years, but it has also raised them annually for more than half a century. That makes it a Dividend King.

Do Procter & Gamble's fundamentals represent a long-term buying opportunity? It's time to uncover why that's the case.

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Selling necessities

Procter & Gamble, a large consumer staples company, has leading market shares across various categories, such as shampoo, razors, toothpaste, detergent, and diapers. Familiar and popular brands include Head & Shoulders, Gillette, Crest, Tide, and Pampers.

Nonetheless, despite selling these basic items, its sales haven't been immune to broad economic factors, including persistently high inflation, which has squeezed consumers' wallets. With gas prices skyrocketing and elevated tariffs, they may continue to feel more pain for some time.

Despite these headwinds, Procter & Gamble's fiscal third-quarter sales, adjusted to remove foreign-currency translation effects and acquisitions/divestitures, grew 3%. Importantly, volume contributed 2 percentage points, with price increases making up the balance. The results were for the three months ended on March 31. Management expects flat to 4% sales growth for the year.

The growth may not excite investors, but the recently reported quarter's sales did increase from prior periods. In the second quarter, adjusted sales were flat from a year ago.

Attractive dividends

The share price has dropped 8.2% over the past year, through May 7. During this time, the S&P 500 index gained 30.3%. Procter & Gamble also underperformed the S&P 500 consumer staples sector's 5.9% gain.

While waiting for the stock price to recover, shareholders can enjoy the 3% dividend yield, nearly triple the S&P 500's 1.1%. In the meantime, Procter & Gamble generates plenty of free cash flow (FCF), or operating cash flow minus capital expenditures, to support dividends. For the first nine months of the year, the company produced FCF of $11 billion, while it paid out $7.6 billion in dividends.

With its high market shares for basic items that have fairly consistent demand, Procter & Gamble has a long history of paying dividends, making payments since 1890. Better still, last month's announcement of a 3% increase to the quarterly rate, to $1.0885 a share, ran the company's streak to 70 straight years.

Nothing states a company's confidence in its prospects like raising dividend payments.

Better valuation

Procter & Gamble's share price drop has created a better valuation for investors. The price-to-earnings (P/E) ratio, a traditional metric, fell from 25 to 21 over the last year.

That's lower than Procter & Gamble's historical valuation. The shares have a 10-year median P/E ratio of 25. Steady sales growth and consistently higher dividends would seem to suggest it deserves a multiple in line with its historical median.

Its current P/E ratio is also lower than the overall market of large-capitalization stocks, as measured by the S&P 500. The index has a P/E multiple of 32. True, Procter & Gamble's growth prospects don't rival some in the index, but that's quite a gap that doesn't seem warranted.

The company's strong commitment to regularly increasing dividends, steady sales growth, and an attractive valuation make the stock an attractive company you can buy and hold for a very long time.

Lawrence Rothman, CFA has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.