Updated on January 30th, 2023 by Nikolaos Sismanis
Over time, the Dividend Aristocrats have proven to be among the best-performing dividend growth stocks in the entire market. Broadly speaking, the Dividend Aristocrats have leadership positions in their respective industries, with durable competitive advantages that allow them to generate long-term growth.
The Dividend Aristocrats are a group of 68 companies in the S&P 500 Index, with 25+ consecutive years of dividend increases.
You can download the full spreadsheet of all 68 Dividend Aristocrats, along with several important financial metrics such as price-to-earnings ratios and dividend yields, by clicking on the link below:
A select number of Dividend Aristocrats also qualify as Dividend Kings, an even more exclusive group of 49 stocks that have raised their dividends for 50+ consecutive years.
Colgate-Palmolive (CL) is a Dividend Aristocrat and is also a Dividend King. Colgate-Palmolive’s long history of dividend increases is due to its strong brands and dominant position across multiple product categories.
Colgate-Palmolive has paid uninterrupted dividends since 1895 and has increased its dividend payments for the past 60 consecutive years.
Colgate-Palmolive stock may be trading at a premium today, but it still remains a strong holding for reliable and steady dividend growth.
Colgate-Palmolive traces its roots all the way back to 1806, making it one of the oldest companies in the US stock market. It was founded by William Colgate, who started a starch, soap, and candle business in New York City.
Today, the company manufactures oral care products like toothpaste, personal care products such as soap, home cleaning products, and pet food.
Major brands include Colgate, Palmolive, Hill’s Science Diet, and many more. The core segment is Oral Care, which constitutes nearly half of the company’s revenues. Colgate-Palmolive is a global giant. It sells its products in over 200 countries and territories around the world, and the company generates nearly $18 billion in annual sales.
Colgate-Palmolive has a highly diversified business model in terms of products as well as geographic markets. Approximately half of the company’s revenue comes from emerging markets, although its reliance upon these markets for growth has waned a bit recently.
This is due to the success of the company’s pet nutrition business, as it continues to take a revenue share from other segments. Emerging markets will be a critical growth catalyst for the company moving forward. Colgate-Palmolive has the #1 position in China, with a market share above 30%.
However, the company also faces several challenges, including global supply chain issues and pronounced inflation that’s increasing costs across the board, including in raw materials and labor. These factors could keep a lid on growth going forward.
Colgate-Palmolive generally enjoys a world-class brand portfolio and high-profit margins. The company’s pet food products, in particular, are a compelling growth catalyst moving forward. Pet food is a growth industry in the U.S.
But Colgate-Palmolive has struggled to generate meaningful growth in recent years. In fact, the company’s earnings declined in fiscal 2022.
Colgate reported fourth-quarter and full-year earnings on January 27th, 2023, with its results coming in rather mixed. The company reported adjusted earnings-per-share of 77 cents, which was in-line estimates, but down 3% year-over-year. Revenue was up 5% to $4.6 billion, beating estimates by $50 million.
Organic sales were up 8.5%, with growth in every division and in all four product categories. The company’s gross profit margin was down 250 basis points to 55.6% as inflationary pressures took their toll once again.
Source: Investor Presentation
For fiscal 2023, management expects net sales growth to be 2% to 5%, including the benefit from their acquisitions of pet food businesses and a low-single-digit negative effect from FX.
On an adjusted basis, the company also anticipates gross profit margin expansion, increased advertising investment, and low to mid-single-digit earnings-per-share growth. Accordingly, we expect fiscal 2023 adjusted earnings-per-share to land close to $3.15.
We also see Colgate-Palmolive producing 6% annual earnings-per-share growth on average in the next five years. Product extensions into premium lines of soap and toothpaste, for instance, should help drive incremental revenue gains in the years to come, and higher pricing should help offset rising costs.
Competitive Advantages & Recession Performance
Colgate-Palmolive has many competitive advantages which have fueled its growth over the past 200+ years.
First, it has built a dominant position in its core product categories, most notably in toothpaste, where Colgate-Palmolive’s market share has risen steadily for many years. Today, it commands a higher market share than the next three biggest competitors combined.
Source: Investor Presentation
Such a high market share allows Colgate-Palmolive to charge higher prices for its premium products and raise prices over time. Pricing power is a critical competitive advantage for consumer goods stocks.
Another major advantage for Colgate-Palmolive is that the products the company sells are necessities of modern life. Consumers need oral, personal, and pet care products irrespective of economic conditions. Colgate-Palmolive enjoys steady demand, which gives the company consistent profitability, even during recessions.
Colgate-Palmolive’s earnings-per-share through the Great Recession are shown below:
- 2007 earnings-per-share of $1.69
- 2008 earnings-per-share of $1.83 (8.3% increase)
- 2009 earnings-per-share of $2.19 (20% increase)
- 2010 earnings-per-share of $2.16 (1.4% decline)
Colgate-Palmolive generated positive earnings growth in 2008 and 2009, during the worst years of the recession. Earnings dipped slightly in 2010 but resumed growing in 2011 and thereafter.
The company’s strong performance from 2007-2010 is a credit to its strong business model and powerful brands. These same qualities helped Colgate-Palmolive remain highly profitable and raise its dividend in 2020, even with the impact of the global coronavirus pandemic. When the next recession strikes, we expect Colgate-Palmolive’s earnings to hold up very well once again.
Colgate-Palmolive’s dividend is also very safe. The company has a projected dividend payout ratio of just under 60% for fiscal 2023, which suggests that the dividend is well-covered.
Valuation & Expected Returns
With expectations of about $3.15 in earnings-per-share for 2023, Colgate-Palmolive stock has a price-to-earnings ratio close to 23.
On the one hand, Colgate-Palmolive has struggled to generate earnings growth in recent years, and it thus does not seem to justify such a high premium valuation. Nevertheless, we believe that investors will continue to pay a premium for the stock due to its unique qualities in a rather uncertain economic environment.
Assuming the stock maintains a fairly stable valuation ahead, along with our projected earnings growth and estimated adjusted earnings-per-share for 2023, we forecast Colgate Palmolive can produce annualized total returns of approximately 8% through 2028. We have assigned a hold rating to the company’s shares as a result.
Colgate-Palmolive is a high-quality business with several category-leading brands. The company has growth potential through product innovation, its Hill’s pet food brand, and growth in emerging markets.
While the stock is certainly not cheap, we can see investors willing to pay a hefty premium for its attractive characteristics and legendary dividend growth track record.
We also believe Colgate’s dividend should remain well-covered, and so further dividend hikes in the coming years should be relatively easily afforded, even if they occur at a relatively modest pace.
Still, the company must prove it can grow its earnings in a more meaningful manner if we are to rate it a buy at its current valuation multiple.
Looking for more dependable dividend growth stocks? The following Sure Dividend databases contain the most trustworthy dividend growers in our investment universe:
- The Dividend Contenders List: 10-24 consecutive years of dividend increases.
- The Dividend Challengers List: 5-9 consecutive years of dividend increases.
- The Dividend Champions: Dividend stocks with 25+ years of dividend increases, including those that may not qualify as Dividend Aristocrats.
- The Dividend Achievers: dividend stocks with 10+ years of consecutive dividend increases.
- The Dividend Kings: considered to be the ultimate dividend growth stocks, the Dividend Kings list is comprised of stocks with 50+ years of consecutive dividend increases
If you’re looking for stocks with unique dividend characteristics, consider the following Sure Dividend databases:
- The Complete List of Monthly Dividend Stocks: stocks that pay dividends each month, for 12 payments over the year.
- The Blue Chip Stocks List: this database contains stocks that qualify as either Dividend Achievers, Dividend Aristocrats, or Dividend Kings.
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: