Consumer staples stocks have a well-deserved reputation for stability.

Consumers will always need personal care products like soap, toothpaste, household cleaning products, and deodorant. This dynamic holds up – even when the broader economy dips into recession.

Prolonged success can lead to complacency. Stability can lead to stagnation. Procter & Gamble (PG) has succumbed to its own success over the last several years.

Over the course of its 178-year history as a company, P&G slowly accumulated brands which added to sales and profits. But this backfired…

P&G was supporting far too many brands.Mediocre brands took resources from the company’s most dominant brands.

This article takes a look at how the company is turning itself around, and why it ranks as a Top 30 stock using The 8 Rules of Dividend Investing.

Turnaround Will Require Patience

P&G is a company in transition.It is also a company with a long-term vision.The company needs to be considered a long-term investment.

P&G has a long history of navigating through various ups and downs, and will very likely come through this difficult period as a leaner, more efficient company.

The company’s management is working very hard to turn operations around, but investors will need to exercise patience.

After all, P&G is truly a behemoth in the consumer staples sector.The stats below show the size and scale of P&G:

• $220 Billion market cap
• $70 billion in annual revenue
• Operations in 180+ countries

But it has also accumulated brands which have deteriorated in recent years, which have weighed on its growth. Net sales in 2015 were lower than in 2011.

Fortunately, management has responded by selling off assets deemed non-critical to the future of the company.

The major transactions P&G has conducted include the sale of its Duracell battery brand to Berkshire Hathaway (BRK-B) for $4.7 billion.

Shortly afterwards, P&G sold a group of more than 40 beauty-product brands to Coty (COTY) for $12.5 billion. The brands sold include Dolce & Gabbana, Gucci, Hugo Boss, Cover Girl, Max Factor, and Wella.

Before it’s all said and done, P&G management has stated its intention to divest as many as 100 brands. Separately, the other core aspect of P&G’s turnaround is cost cuts. P&G intends to reduce costs by $10 billion over the next five years, accomplished largely through job cuts.

The goal of all of this is to slim down P&G to become a nimbler company that can more easily respond to changes in consumer preferences.

So far, there are glimmers of hope that P&G’s focus on streamlining its brand portfolio is working. P&G’s organic sales, which excludes the effects of foreign exchange fluctuations, rose 1% company-wide last year. But organic sales across P&G’s 10 focus brands rose 2% last year, which was better than the company average.

Better yet, the company posted solid 11% constant-currency core earnings-per-share growth in fiscal 2015.The company is expecting constant-currency core earnings-per-share growth of 4% to 6% in full fiscal 2016.

The positive momentum has largely continued through the first three fiscal quarters of the current fiscal year, organic sales are up 1% versus the same nine-month period last year. This is fairly weak growth, but it is growth nonetheless.

Organic growth continues to indicate rising demand for P&G’s products. A key driver of P&G’s organic revenue growth is price increases, and it is another good sign that the company has retained its pricing power.

Fundamental Strengths Remain Intact

P&G has the ability to generate high margins and excellent profitability because of its distribution and economies of scale.

P&G has 21 brands that each collect at least $1 billion in sales each year. A few of P&G’s flagship brands are Charmin, Tide, Bounty, Old Spice, Head & Shoulders, Gillette, and Downy. The image below breaks down the company’s core brands:

Source:  P&G Investor Relations

It is largely because of these core brands that P&G management expects full-year fiscal 2016 organic sales to increase at a low-single digit rate.

In addition, P&G is a highly diversified company, both in terms of its brand portfolio as well as its geographic focus. No single business segment represents more than 29% of P&G’s total sales.

Moreover, the company derived 60% of its 2015 revenue from outside North America. Approximately 38% of total sales were generated from emerging markets including China, India, and Latin America, which are poised to fuel significant growth for P&G going forward.These markets are projected to grow their economies at much faster rates than more developed economies like the U.S.

Over time, P&G’s earnings should continue to grow, as the company is nearing completion of a massive cost-cutting and divestment program. Restructuring costs and one-time charges associated with the company’s turnaround are the major reasons why earnings declined significantly last year (on a GAAP basis, not core earnings basis).

P&G will use a significant amount of the proceeds related to its brand divestments to repurchase its own stock. Management has allocated $8-$9 billion in share buybacks this year as a result of its brand divestments. This will serve as a strong tailwind for earnings, since fewer shares outstanding results in a larger portion of profits attributed to each remaining share.

A return to earnings growth will help the company return to higher dividend growth as well. This would be huge for investors, since it stands to reason the bulk of P&G shareholders own the stock largely for the dividend.

P&G has raised its dividend for an amazing 60 years in a row, which is an extremely impressive track record of consecutive dividend increases. The company’s long dividend streak makes it a Dividend King – a select group of 18 businesses with 50+ years of consecutive dividend increases.

P&G raised its dividend in April by 1%. Although this may have been perceived as a disappointment, it is nevertheless impressive for a company in a difficult environment. The company’s earnings were down 39% in fiscal 2015 on a GAAP basis due to restructuring charges and negative currency effects.

The dividend increase is a testament to the durability of its business model. P&G has paid dividends to shareholders for 126 years in a row, a streak dating back all the way to its incorporation in 1890. According to management, P&G forecasts dividend payments of approximately $7.5 billion this fiscal year, which would bring the total dividends paid to investors over the past 10 years to almost $60 billion.

Final Thoughts

P&G has taken investors on a wild ride over the past year. In the past 12 months, P&G stock swung from a closing high of $82.30, to as low as $68.06, before recovering back to its current level of $82.95 per share.

But for income investors, P&G is still a great stock. P&G’s current annualized dividend of $2.68 per share represents a hefty 3.2% dividend yield.

This is well above the S&P 500 Index average, and is double the yield of the 10-Year U.S. Treasury Bond. As a result, P&G is very attractive as an investment for income.

Additionally, the company’s cost-cutting and divestments have aligned the company for better growth going forward.

Investors don’t have to pay an absurd price-to-earnings multiple for P&G.The company currently trades for a price-to-earnings ratio (using core earnings) of 21.4. For comparison, the S&P 500 currently trades for a price-to-earnings multiple of 23.9.