Friday, March 7, 2014

Stock Analysis of Colgate-Palmolive

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. This dividend king has paid dividends since 1895 and has increased them for 50 years in a row.

The company’s latest dividend increase was announced in March 2013 when the Board of Directors approved a 9.70% increase in the quarterly annual dividend to 34 cents /share. The company’s peer group includes Procter & Gamble (PG), Clorox (CLX), and Kimberly Clark (KMB).

Over the past decade this dividend growth stock has delivered an annualized total return of 12.60% to its shareholders.


The company has managed to deliver a 9% average increase in annual EPS over the past decade. Colgate-Palmolive is expected to earn $2.83 per share in 2013 and $3.09 per share in 2014. In comparison, the company earned $2.58/share in 2012.

The annual dividend payment has increased by 11.40% per year over the past decade, which is higher than the growth in EPS. This was accomplished through the expansion of the dividend payout ratio. Future growth will be limited by any growth in earnings per share.

An 11% growth in distributions translates into the dividend payment doubling every six and a half years on average. Since 1985, Colgate-Palmolive has been able to double dividends every seven years on average.

The dividend payout ratio increased from 37% in 2003 to almost 47% in 2012. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

The company enjoys really high returns on equity, which is common for most high quality dividend payers that do not require a lot of equity to operate the business. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.

Currently, the stock is overvalued, as it trades at a P/E of 22.60 and yields only 2.10%. I am analyzing the company because I believe it is quality dividend growth stock, which will be a very good addition to my portfolio on dips below $55-$56.

Full Disclosure: Long CLX, PG, KMB, CL

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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].

3 comments:

  1. How can it be that their ROE is around 100% + they are paying out around 37-47% in dividends? To me if those two values added together is above 100% the company must be using debt as a huge leverage to push up ROE.

    Is one of the bonus incentives for the management based on ROE? How has their debt increased from 2004 to now?

    And if I am wrong with my thoughts then please tell me so and explain how I am thinking wrong here. With this said I do not mean that it is a bad investment because I am sure that they will continue to sell massive amount of products for a long time to go!

    ReplyDelete
  2. Hi Fredrick,

    Please check the answer to the same question you posted on my site here:

    http://www.dividendgrowthinvestor.com/2014/02/colgate-palmolive-cl-dividend-stock.html

    Best Regards,

    DGI

    ReplyDelete
  3. I think that’s a very valid point of buying the stock on dips. Because we have been seeing the emerging markets struggling to increase their growth. Inflation has been rising and purchasing power of people there has decreased. If this situation further worsens, risks can be there. And the Fed tapering also would negatively impact the Emerging economies. But apart from this harsh reality, CL is showing strong Organic growth which can be an important factor in increasing their share price in the future.

    ReplyDelete

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