Updated on February 22nd, 2022 by Kay Ng
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 66 companies in the S&P 500 Index, with 25+ consecutive years of dividend increases.
You can download the full spreadsheet of all 66 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 39 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 59 consecutive years.
Colgate-Palmolive stock appears to be slightly overvalued today, which could limit its total returns. But the stock remains a strong holding for steady dividend growth year after year.
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 revenue. Colgate-Palmolive is a global giant. It sells its products in over 200 countries and territories around the world, and the company generates more than $17 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 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 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. But Colgate-Palmolive has struggled to generate meaningful growth in recent years. Here are the company’s recent financial results in 2021.
Colgate–Palmolive reported fourth-quarter and full–year earnings results on January 28th, 2022. Net sales was up 2.0% year–over–year during Q4 to $4.4 billion, supported by organic sales growth of 3.0%. The gross profit margin contracted to 58.1% (versus 61.1% in Q4 2020) due to inflation leading to higher cost of sales.
For the full year 2021, net sales increased 6.0% to $17.4 billion, while organic sales growth was 4.5%. The bottom line was adjusted earnings per share of $3.21, up 4.9% year over year. Particularly, it saw strong growth momentum in its Oral Care and Pet Nutrition businesses.
The company’s pet food products are a compelling growth catalyst moving forward. Pet food is a growth industry in the U.S.
For 2022, the Consumer Staples stock forecast net sales growth of 1-4% (including a low-single-digit negative impact from foreign exchange) and organic sales growth of 3-5%.
We see Colgate-Palmolive producing 4% 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.
Such 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 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 55% for fiscal 2022, which is a very healthy payout ratio.
Valuation & Expected Returns
With expectations of $3.30 in earnings-per-share for 2022, Colgate-Palmolive stock has a price-to-earnings ratio of 24.1. While the stock has had higher valuations than this in the past, it is still elevated.
Given Colgate-Palmolive’s struggles to generate earnings growth in recent years, it does not seem to justify such a high premium valuation. Our estimate of fair value is 23 times earnings.
As a result, there is risk of multiple contraction, which would negatively impact shareholder returns. We see a headwind of almost -1% to total annual returns from the valuation reverting back to fair value over the next five years. This is a challenge for the stock moving forward, as it makes it difficult to generate a compelling total return in such a scenario.
Even with 4% projected earnings growth and the 2.3% current dividend yield, total returns are expected to reach 5.3% per year through 2027. This makes the stock a hold in our view.
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 the emerging markets.
Now might not be the best time to buy shares of Colgate-Palmolive however, as the stock appears to be slightly overvalued. The company needs to prove it can generate higher levels of growth to justify its premium valuation.
Colgate-Palmolive does not offer a high dividend yield or high dividend growth. And, the stock appears overvalued right now. That said, investors can still count on steady dividend increases each year, regardless of the state of the global economy.
Additionally, the following Sure Dividend databases contain the most reliable 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: