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Colgate Palmolive Dividend Stock Analysis

October 15, 2012 | About:
Charles Rotblut

The Dividend Guy Blog

I’m currently producing four consumer product stock analyses in succession. The first stock of this block was Clorox (CLX). Today’s dividend growth stock is Colgate Palmolive (CL). The next two stocks will be Procter & Gamble (PG) along with Kimberly Clark (KMB).

Colgate Palmolive (CL) Business Description:

CL is known for its famous toothpaste, Colgate (44.7% of global market share for toothpaste), and its Palmolive cleaning products. Colgate Palmolive is one of the largest consumer product companies with $16.7 billion in sales operating in over 200 countries. Seventy-five percent of Colgate Palmolive’s sales come from outside the U.S. CL is divided in four segments: oral, personal care, home care and others ("others" includes pet nutrition).

Following the trend of socially responsible companies, Colgate Palmolive is also focusing on employee equity and environment care. They can claim to promote health with their oral care and personal care products (who would argue that they can’t help with hygiene in the emerging markets through their toothpaste?). In their financial reports, they outline their “Sustainability Strategy” aiming at five principles:

  1. Promoting healthier lives
  2. Contributing to the community
  3. Delivering products that respect our planet
  4. Reducing water consumption
  5. Reducing impact on climate and environment

CL Stock Graph

CL Dividend Growth Graph

CL is a dividend champion with 49 consecutive years of increasing its dividend. Over the past five years, CL’s dividend growth rate is at 12.03%. This means that the stock doubles its dividend every six years. The payout ratio is relatively low (49.49%) which means it possibly has a lot of room to keep increasing its dividend over the upcoming years.

CL Ratios and Financial Info:

TickerCL US Equity
Dividend Metrics
Current Dividend Yield2.3
5 year Dividend Growth12.03
1 year Dividend Growth8.11
Company Metrics
Sales Growth (1 year)7.52
Sales Growth (5 year)4.88
EPS growth (5 year)10.55
P/E ratio20.98
P/E Next Year18.4
Margins growth0.91
Payout ratio49.49
Return on Equity96.28
Debt to Capital Ratio0.1

CL financial metrics show very good numbers. From sales growth (4.88% over the past five years) to Earnings per share growth (10.55% for the past five years!), it clearly shows some strong numbers (not to forget highlighting a majestic ROE of 96.28%). I guess this is why its P/E ratio is higher than Clorox (20.98 versus 17.22).

CL shows a great trend in net sales and EPS:

On the Colgate Palmolive site, you can find several historical financial charts here.

CL Stock Technical Analysis

CL is currently trading on a strong uptrend. It might be a good time to acquire this stock. Click here to get a free stock analysis report on CL.

Colgate Palmolive Upcoming Opportunities and Dangers:

One of CL’s major strength is its international presence. It is dominating the South American market for toothpaste which leads to very high profit margins. Since most emerging market populations are now taking better care of themselves, it’s logical to think that toothpaste sales will continue to grow in these markets.

On the other hand, this leaves Colgate-Palmolive more vulnerable to currency exchange volatility within these economies. In July 2012, Chief Executive Ian Cook mentioned that currency rates could hit CL’s EPS up to as high as 6% to 7%. Also, since Colgate toothpaste has been massively popular in emerging markets for several years, the future growth likely won’t be as spectacular as previously.

Its sales growth in the U.S. is under 3% (fairly low), but it gets most of its growth from the international division (with a 13% increase in the last quarter). Therefore, while CL is well diversified, its great results are dependent on its ability to aggressively develop emerging markets. After expecting double-digit growth up to the middle of the year, a recent conference call in September mentioned a 6% to 7% growth target for 2012. While hardly bad news in this rough economy, it also shows that the gold rush days of growth coming from emerging markets could slowdown to a more regular rate.

Final Thoughts on Colgate Palmolive

As a result of my analysis, I would be tempted to consider Colgate a good stock in a dividend portfolio but more for its ability to increase its dividend than its ability to grow its business overseas. The current P/E ratio may be slightly too high considering a growth slowdown in Latin America and other countries.

If you look back at the past five years, this company shows brilliant results. I question more whether they can keep the pace and if not, am I paying too much at a 20 P/E ratio?

Disclaimer: I do not hold a position of CL at this time.

Rating: 3.3/5 (17 votes)


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