1. How to use GuruFocus - Tutorials
  2. What Is in the GuruFocus Premium Membership?
  3. A DIY Guide on How to Invest Using Guru Strategies
Articles (956) 

Colgate-Palmolive Dividend Stock Analysis

July 05, 2012 | About:

Linked here is a detailed quantitative analysis of Colgate-Palmolive (NYSE:CL). Below are some highlights from the above linked analysis:

Company Description: Colgate-Palmolive Company (Colgate) is a major consumer products company markets oral, personal and household care and pet nutrition products in more than 200 countries and territories.

Fair Value: In calculating fair value, I consider the NPV MMA Differential Fair Value along with these four calculations of fair value (see page 2 of the linked PDF for a detailed description):

1. Avg. High Yield Price

2. 20-Year DCF Price

3. Avg. P/E Price

4. Graham Number

CL is trading at a premium to all four valuations above. Since CL's tangible book value is not meaningful, a Graham number can not be calculated. The stock is trading at a 8.7% premium to its calculated fair value of $93.42. CL did not earn any Stars in this section.

Dividend Analytical Data: In this section there are three possible Stars and three key metrics (see page 2 of the linked PDF for a detailed description):

1. Free Cash Flow Payout

2. Debt To Total Capital

3. Key Metrics

4. Dividend Growth Rate

5. Years of Div. Growth

6. Rolling 4-yr Div. > 15%

CL earned two Stars in this section for 1.) and 3.) above. A Star was earned since the Free Cash Flow payout ratio was less than 60% and there were no negative Free Cash Flows over the last 10 years. CL earned a Star for having an acceptable score in at least two of the four Key Metrics measured. The company has paid a cash dividend to shareholders every year since 1895 and has increased its dividend payments for 49 consecutive years.

Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA) or Treasury bond? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section (see page 2 of the linked PDF for a detailed description):

1. NPV MMA Diff.

2. Years to > MMA

CL earned a Star in this section for its NPV MMA Diff. of the $541. This amount is in excess of the $500 target I look for in a stock that has increased dividends as long as CL has. If CL grows its dividend at 7.5% per year, it will take four years to equal a MMA yielding an estimated 20-year average rate of 3.1%. CL earned a check for the Key Metric 'Years to >MMA' since its four years is less than the five-year target.

Memberships and Peers: CL is a member of the S&P 500, a Dividend Aristocrat, a member of the Broad Dividend Achievers™ Index and a Dividend Champion. The company's peer group includes: Procter & Gamble Co. (NYSE:PG) with a 3.6% yield, Kimberly-Clark Corporation (NYSE:KMB) with a 3.6% yield and Clorox Corporation (NYSE:CLX) with a 3.6% yield.

Conclusion: CL did not earn any Stars in the Fair Value section, earned two Stars in the Dividend Analytical Data section and earned one Star in the Dividend Income vs. MMA section for a total of three Stars. This quantitatively ranks CL as a 3-Star Hold stock.

Using my D4L-PreScreen.xls model, I determined the share price would need to increase to $104.03 before CL's NPV MMA Differential decreased to the $500 minimum that I look for in a stock with 49 years of consecutive dividend increases. At that price the stock would yield 2.4%.

Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $500 NPV MMA Differential, the calculated rate is 7.3%. This dividend growth rate is only slightly lower than the 7.5% used in this analysis, thus providing no margin of safety. CL has a risk rating of 1.25 which classifies it as a low-risk stock.

Demand for household and personal care products is generally stable and not affected by changes in the economy. 2011 was a tough year for CL with its profits under pressure from the competition, most notably in its oral care and personal/home care businesses. However, 2012 should be a better year as competitors return to more normal levels of promotional spending.

Since I last reviewed CL back in November 2011, three important things have changed: 1. The share price has increased significantly from $86.73 to $101.53, 2. the dividend growth rate has dramatically declined from 11.8% to 7.5%, and 3. its debt to total capital has increased from 62% to 67%. With a calculated fair value of $93.42, CL is trading at a premium and it dividend fundamentals are weaker.

When I combine the above with a current yield below my minimum, I have elected to reduce my position in CL. There are simply better places for this money to work more effectively for me at this time.

Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.

Full Disclosure: At the time of this writing, I was long CL (1.3% of my Dividend Growth Portfolio) and also held positions in PG, KMB and CLX. See a list of all my dividend growth holdings here.

Related Articles:

- Southside Bancshares Inc. (SBSI) Dividend Stock Analysis

- When It Comes To Dividends, Target Is Putting Pressure On Wal-Mart

- International Business Machines Corp. (IBM) Dividend Stock Analysis

- Hasbro, Inc. (HAS) Dividend Stock Analysis

- More Stock Analysis

About the author:

Visit Dividends4Life at:

Rating: 4.0/5 (8 votes)


Please leave your comment:

GuruFocus has detected 5 Warning Signs with Colgate-Palmolive Co $CL.
More than 500,000 people have already joined GuruFocus to track the stocks they follow and exchange investment ideas.

Performances of the stocks mentioned by Dividends4Life

User Generated Screeners

TheAccountantVol Screen
boursep - peter lynch4
pbarker46Short % < 2,PE10 <30
nuno.a.pomboEstatiscal Low Priced Stocks
hugHigh Piotroski
hugHigh Piotroski & Low EV/REBITD
pbarker46Shiller USA
BoubaOCF Size 1
Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)