Procter & Gamble (PG) has outperformed the market by an impressive margin in the last three months. The stock has rallied 10% whereas the S&P has shed 15%. This performance confirms the resilience of the stock during bear markets, recessions or market sell-offs. As the S&P recently entered into bear market territory, consumers should certainly put Procter & Gamble on their radar.

Business Overview

Procter & Gamble has been going through a major transformation plan in the last few years. The company has reduced the number of its brands from 170 to 65 and the number of its categories from 16 to 10 in an effort to maintain only the high-margin, high-growth products and focus exclusively on them. Moreover, the consumer staples giant recently announced its most significant organizational change in the last 20 years. It will further reduce the number of business units, from 10 to 6, with each of the business units having its own CEO. The change will come in effect in July-2019.

The goal of the restructuring is to help the company return to growth mode via organic sales growth and margin expansion. Due to the fierce competition in the retail sector and the inefficient and bureaucratic corporate structure of Procter & Gamble, the company has failed to grow its gross and operating margin for a whole decade. During this period, the two metrics have remained essentially flat, around 49% and 20%, respectively.

The organizational restructuring has already begun to bear fruit. In the most recent quarter, Procter & Gamble grew its organic sales by 4% and thus exceeded the analysts’ consensus by $220 M. Management expects 2%-3% organic sales growth and approximate 5% earnings-per-share growth for the full fiscal year.

Dividend

Procter & Gamble has an exceptional dividend growth record. It has raised its dividend for 62 consecutive years and hence it is a dividend king. Due to its recent rally, the stock is currently offering a dividend yield of only 3.2%. Nevertheless, this yield is still much higher than the yield of the S&P (2.1%).

Due to the absence of earnings growth in the last three years, Procter & Gamble has raised its dividend at a slow pace over this period. However, as the company is returning to growth mode, it is likely to somewhat enhance its dividend growth rate in the upcoming years, from low-single digits to mid-single digits.

Resilience To Recessions

As the products of Procter & Gamble are essential to consumers, the company exhibits impressive resilience during recessions. In the Great Recession, the worst economic crisis of the last 80 years, the earnings per share of the consumer staples giant fell only 1.6% in 2009 and 1.4% in 2010. That performance was far better than the performance of the vast majority of companies and led the stock to outperform the market by a wide margin.

The same pattern has been evident in the last three months, in which S&P entered into bear market zone. While the index has shed 15%, Procter & Gamble has rallied 10%. This divergence is likely to remain in place as long as the S&P remains in bear market territory. Therefore, those who are afraid of a fierce bear market should consider purchasing Procter & Gamble for its growing dividend and its solid performance even under the most adverse economic conditions.

Final Thoughts

During the almost decade-long bull market that recently came to an end, the shareholders of Procter & Gamble were greatly disappointed by the dramatic underperformance of the stock, which resulted from its poor business performance. However, the company is going through a promising transformation while the S&P has just entered a bear market phase. These two conditions are ideal for an initiation of a position in Procter & Gamble.