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Dividend Aristocrats In Focus: Church & Dwight

Updated on February 3rd, 2023 by Kay Ng

The Dividend Aristocrats are some of the best dividend growth stocks an investor will find. These companies are in the S&P 500 Index, with 25+ consecutive years of dividend increases.

We believe the Dividend Aristocrats are among the highest-quality dividend growth stocks around. For this reason, we created a downloadable spreadsheet of all 68 Dividend Aristocrats, along with important metrics such as price-to-earnings ratios and dividend yields.

You can download the Excel sheet of all 68 Dividend Aristocrats by clicking the link below:


Each year, we review all of the Dividend Aristocrats. The next stock in the series is a consumer staple giant Church & Dwight Co., Inc. (CHD). Church & Dwight might not be as familiar as some of its consumer staple competitors such as Procter & Gamble (PG), Clorox (CLX), or Colgate-Palmolive (CL); however, it has undoubtedly earned its place on the Dividend Aristocrats list.

Church & Dwight has now increased its dividend for 27 consecutive years. The company’s dividend is also very safe, with a dividend payout ratio of 36%.

At the same time, Church & Dwight’s stock has been in a long-term upward trend. However, the stock is down about 20% over the last year because it was overvalued before. It now appears to be, at best, fully valued today.

Business Overview

Church & Dwight is a diversified consumer staples company that manufactures and distributes products under several well-known names like Arm & Hammer, Trojan, OxiClean, Spinbrush, First Response, Waterpik, Nair, Orajel, and XTRA. The company was founded in 1846, has increased its dividend for 27 consecutive years, and trades with a market capitalization of $19.8 billion on about $5.3 billion in annual revenue.

For more than 100 years, Church & Dwight was a baking soda company operating with only the Arm & Hammer brand. However, since 2001, the Company has acquired 13 of its 14 “power brands.” Church & Dwight’s acquisitions of leading brands have diversified its reach across the household and personal care space. Also, Church & Dwight has paid quarterly dividends to shareholders for 122 consecutive years.

Source: Investor Presentation

On February 3rd, 2023, the company reported fourth-quarter earnings and full-year results for 2022. Total revenue for the quarter came to $1.44 billion, up 4.9% year over year.

The company saw organic sales growth of 0.4%. It posted a net loss of -$164.7 million for the quarter primarily from a tripling of its selling, general, and administrative expenses (SG&A), as well as a 5.8% rise in the cost of sales, which climbed faster than revenue growth. Adjusted earnings per share (EPS) fell -3.1% to $0.62 year over year.

For the full year, revenue grew 3.6% to $5.38 billion from last year. Income from operations dropped 45% to $597.8 million, again due to an 84% rise in SG&A to $1.1 billion and a 6.8% increase in cost of sales to $3.1 billion. Ultimately, 2023 net income fell 50% to $413.9 million. The big jump in SG&A was due to $411 million of intangible asset impairment charges related to the Flawless business. Excluding these charges, SG&A would have declined 1.4% year over year. The company noted adjusted EPS fell only -1.7% to $2.97.

The company also announced an increase in its dividend. It declared a 3.8% increase in the quarterly dividend from $0.2625 to $0.2725 per share, equivalent to an annual dividend of $1.09 per share.

Projecting reported sales growth of 5-7% and organic sales growth of roughly 2-4%, Church & Dwight guided for adjusted EPS growth of 0-4% in 2023. We take the midpoint of this EPS growth rate for our 2023 adjusted EPS estimate of $3.03. For the long term, the company targets an 8% EPS growth rate based on 3% organic net sales growth and gross margin expansion.

We expect a 6% annual EPS growth over the next five years, comprised mainly of revenue growth and share buybacks.

Growth Prospects

While 2020 was a challenging year for the global economy, due to the coronavirus pandemic, which weighed heavily on economic growth, Church & Dwight continued to generate steady profits. In 2021, the company continued to grow its earnings, and the stock price continued to run higher, with a total return of 17.5% for the entire year of 2021.

The biggest growth driver for Church & Dwight will be continued organic sales growth and acquiring solid brands in the future. The 14 “power brands” made up 80% of sales and profits in 2021.

Source: Investor Presentation

Another growth driver for the company is online sales. For example, 16% of Church & Dwight’s net sales came from online shopping last year.

Source: Investor Presentation

Competitive Advantages & Recession Performance

Church & Dwight’s competitive advantage comes from its willingness to execute acquisitions and growth in organic sales. This growth-by-acquisition strategy gives the company an enduring opportunity to continue growing its business for the foreseeable future. CHD is also modestly recession-resistant. For example, Church & Dwight’s competitive advantages allow it to maintain consistent profitability each year, even during recessions.

Church & Dwight’s earnings-per-share during the Great Recession are below:

Durning the COVID-19 pandemic, earnings grew from $2.47 per share in 2019 to $2.83 per share in 2020. This represents an increase of 15% year-over-year.

Valuation & Expected Returns

Based on expected EPS of $3.03 for 2023, Church & Dwight’s stock trades for a price-to-earnings ratio of 27.4, using today’s stock price of ~$83. CHD held an average price-to-earnings ratio of ~26 over the past ten years. Thus, we think that a fair earning multiple is 26.0. Consequently, based on its average valuation multiples, Church & Dwight’s stock appears to be overvalued.

If the company stock experiences a decline in the valuation multiple to our fair P/E of 26.0, it will reduce annual shareholder returns by 1.0% annually over the next five years.

Earnings growth and dividends will positively impact future returns. First, we expect the Company to grow earnings-per-share by 6% per year through 2028.

Lastly, CHD stock has a dividend yield of 1.3%. Putting it all together, a breakdown of our expected future returns is as follows:

In this projection, total shareholder returns could reach 6.2% annualized through 2028.

Final Thoughts

Church & Dwight has many of the characteristics of a high-quality dividend investment. Most notably, the company’s portfolio of brands allows it to grow its earnings through most years no matter which stage of the economic cycle we’re at. Also, Church & Dwight shares its growth with its shareholders through consistent dividend increases.

The company’s growth-through-acquisition strategy is time-tested, and its management team has developed considerable expertise in scaling smaller brands through its existing infrastructure. Occasionally, there would be slip-ups leading to impairment charges like we saw last year, but it shouldn’t be viewed as a norm.

At the end of the day, the stock’s valuation is just above fair value. We forecast total returns accruing at 6.2% annually, consisting of 6% earnings growth, the 1.3% dividend yield, and a 1.0% headwind from the valuation. Shares earn a hold rating.

Additionally, the following Sure Dividend databases contain the most reliable dividend growers in our investment universe:

If you’re looking for stocks with unique dividend characteristics, consider the following Sure Dividend databases:

The major domestic stock market indices are another solid resource for finding investment ideas. Sure Dividend compiles the following stock market databases and updates them monthly:

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