Friday, March 28, 2014

Analysis of Colgate-Palmolive Latest Dividend Increase

Colgate-Palmolive Company (CL), together with its subsidiaries, manufactures and markets consumer products worldwide. The company operates in two segments: Oral, Personal and Home Care; and Pet Nutrition. In the past week, the company approved a 5.90% increase in its quarterly dividends to 36 cents/share. This marked the 51st consecutive annual dividend increase for this dividend champion.

When I last analyzed the company several weeks ago, I found it to be overvalued. At this stage, I would be reluctant to add to my position in the stock, unless of course it declines from here. It is selling for 26.80 times earnings, and yields 2.30% based on the new dividend.



The latest dividend increase is the slowest since 1980, when the company increased distributions by a mere 3.67%. The company also raised distributions by a mere 6.90% in 2012, but this was followed by a 9.70% increase in the following year.

Year
Quarterly Dividend
Raise
2014
 $       0.3600
5.88%
2013
 $       0.3400
9.68%
2012
 $       0.3100
6.90%
2011
 $       0.2900
9.43%
2010
 $       0.2650
20.45%
2009
 $       0.2200
10.00%
2008
 $       0.2000
11.11%
2007
 $       0.1800
12.50%
2006
 $       0.1600
10.34%
2005
 $       0.1450
20.83%
2003
 $       0.1200
33.33%
2001
 $       0.0900
13.92%
1999
 $       0.0790
14.91%
1997
 $     0.06875
17.02%
1995
 $     0.05875
14.63%
1994
 $     0.05125
13.89%
1993
 $     0.04500
16.13%
1992
 $     0.03875
16.96%
1991
 $     0.03313
17.77%
1989
 $     0.02813
21.67%
1987
 $     0.02312
8.80%
1985
 $     0.02125
6.25%
1983
 $     0.02000
6.67%
1981
 $     0.01875
7.14%
1980
 $     0.01750
3.67%
1979
 $     0.01688
8.07%
1977
 $     0.01562
13.60%

I obtained the data for the table below from Yahoo! Finance. It shows dividend payments in the year they were increased, and the percentage increase from the previous payment.

On a completely unrelated note, did you know that an investment in 1985 would be generating an yield on cost of 99% today? I used Yahoo! Finance data again, but double checked the yields against my manuals from the time, because the 1985 current yields seemed a little high. However, it seems like Colgate was yielding a lot at the time, but you also need to remember that long-term Treasuries yielded close to 10%  as well. That definitely shows that picking a company with a high current yield that can grow distributions over time at a double digit rate can result in some tremendous compounding of income and invested capital.

Year
DPS
Price
Yield
YOC
2014
 $    1.420
 $  63.380
2.24%
99.17%
2013
 $    1.330
 $  65.210
2.04%
92.89%
2012
 $    1.220
 $  52.270
2.33%
85.20%
2011
 $    1.135
 $  46.195
2.46%
79.27%
2010
 $    1.015
 $  40.185
2.53%
70.89%
2009
 $    0.860
 $  41.075
2.09%
60.06%
2008
 $    0.780
 $  34.270
2.28%
54.47%
2007
 $    0.700
 $  38.980
1.80%
48.89%
2006
 $    0.625
 $  32.620
1.92%
43.65%
2005
 $    0.555
 $  27.425
2.02%
38.76%
2004
 $    0.480
 $  25.580
1.88%
33.52%
2003
 $    0.450
 $  25.025
1.80%
31.43%
2002
 $    0.360
 $  26.215
1.37%
25.14%
2001
 $    0.338
 $  28.875
1.17%
23.61%
2000
 $    0.316
 $  32.275
0.98%
22.07%
1999
 $    0.296
 $  32.415
0.91%
20.64%
1998
 $    0.275
 $  22.878
1.20%
19.21%
1997
 $    0.265
 $  17.870
1.48%
18.51%
1996
 $    0.235
 $  11.021
2.13%
16.41%
1995
 $    0.220
 $    8.196
2.68%
15.36%
1994
 $  0.1925
 $    7.199
2.67%
13.44%
1993
 $  0.1675
 $    6.898
2.43%
11.70%
1992
 $  0.1438
 $    6.019
2.39%
10.04%
1991
 $  0.1275
 $    5.160
2.47%
8.91%
1990
 $  0.1125
 $    3.794
2.97%
7.86%
1989
 $  0.0975
 $    3.176
3.07%
6.81%
1988
 $  0.0925
 $    2.282
4.05%
6.46%
1987
 $  0.0869
 $  1.8400
4.72%
6.07%
1986
 $  0.0850
 $  1.8550
4.58%
5.94%
1985
 $  0.0813
 $  1.4319
5.67%
5.67%

The company earned $2.38/share in 2013, and is expected to earn $3.01 in 2014 and $3.32 in 2015. However, I believe that dividend increases are decisions by the Board of Directors, which show their expectations for profit growth in the next 1 – 2 years. The decrease in dividend growth shows that management does not expect double digit earnings increases in the near term. I do think that this is a temporary situation however, and the Board will increase distributions by close to 8-9%/year over the next 5 – 10 years. The company still has strong competitive advantages, pricing power and a portfolio of branded products, which consumers buy regularly for decades.

That being said, I would hold on to my existing Colgate – Palmolive shares but would probably allocate my dividends elsewhere, where I can find better values for my money.

Full Disclosure: Long CL

Relevant Articles:

How to read my weekly dividend increase reports
Colgate-Palmolive (CL) Dividend Stock Analysis
Seven wide-moat dividends stocks to consider
Dividend Champions - The Best List for Dividend Investors
Strong Brands Grow Dividends

This article was written by Dividend Growth Investor. If you enjoyed this article, please subscribe to have future articles emailed to you [Email] or follow me on Twitter [Twitter].

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