Updated on October 24th, 2024 by Felix Martinez
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These stocks have 50+ year histories of increasing their dividends to shareholders. Due to their earnings stability and impressive dividend track records, they are generally sought out by long-term income investors.
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Colgate-Palmolive (CL) is a consumer staples conglomerate that has increased its dividend for 63 consecutive years, one of the longest streaks in the entire stock market.
Perhaps more impressively, Colgate-Palmolive has continuously paid dividends on its common stock since 1895.
Colgate-Palmolive has been working on increasing its growth in recent years. The company has made noteworthy progress post-pandemic.
Below, we’ll discuss the company’s growth prospects, valuation, and dividend.
Business Overview
Colgate-Palmolive was founded in 1806 and has built an impressive and extensive portfolio of consumer brands. It operates globally, selling in most countries around the world.
About one-sixth of its revenue comes from Hill’s pet food division, which has shown very strong growth in recent years.
The other five-sixths of revenue comes from a mix of cleaning and personal care products, with the company’s most recognizable brands being Colgate (tooth care) and Palmolive (soap).
However, Colgate-Palmolive has built a diverse slate of brands besides its two namesake brands.
Colgate-Palmolive trades for a $80.1 Billion market cap, producing about $19.5 billion in annual revenue.
Source: Investor presentation
Colgate-Palmolive has structured itself into four units: Oral Care, Personal Care, Home Care, and Pet Nutrition.
The company has created and acquired numerous brands over time and, more recently, has worked to innovate with its best brands through line extensions.
Note: A line extension, short for ‘product line extension,’ is when a brand launches a new product in a category where it already has a presence. A line extension could be a new flavor, scent, special ingredient, etc.
Below, we’ll look at the company’s growth prospects.
Growth Prospects
We expect Colgate-Palmolive to post 8% average earnings-per-share growth in the next five years, as it has a few levers it can pull to power the bottom line higher.
Since the company sells globally, it is exposed to forex translation, meaning it is beholden to many different currencies and their relative value against the dollar.
In addition, commodity volatility has sometimes affected profit margins, although the company has undertaken cost-saving measures to combat this.
Another way Colgate-Palmolive has improved growth is by incorporating true innovation into its portfolio rather than just creating a slightly different version of an existing product.
That has worked well for the company, too, but the idea is to use its enormous R&D budget to create new products. Over time, this can lead to incremental revenue growth.
However, line extensions still work quite well for Colgate-Palmolive because it can leverage its highly recognizable global brands.
Colgate-Palmolive has done this with numerous products, with its Optic White Renewal being a particularly successful example.
Finally, Colgate-Palmolive has concentrated its R&D dollars on what it calls “premiumization,” which is moving up-market with its products, as it did with Optic White.
This has resulted in very strong organic sales growth in recent years.
Source: Investor presentation
Colgate-Palmolive has had fifteen straight quarters at or above the target organic sales growth rate of 3% to 5%. Growth has accelerated in recent years, with the coronavirus pandemic only being a temporary setback.
This will drive much of the company’s growth in the coming years.
Colgate-Palmolive reported strong financial results for the second quarter of 2024, with net sales increasing by 4.9% and organic sales up 9.0%. The company achieved a 48% rise in GAAP earnings per share (EPS) to $0.89, while its base business EPS grew by 18% to $0.91. Colgate’s gross profit margin improved by 280 basis points to 60.6%, and base business gross profit margin rose by 300 basis points to 60.8%. For the first half of 2024, the company generated $1.67 billion in net cash from operations, maintaining its global leadership in toothpaste and manual toothbrushes with market shares of 41.5% and 32.2%, respectively.
CEO Noel Wallace expressed satisfaction with the company’s performance, emphasizing its fourth consecutive quarter of gross margin growth and double-digit increases in operating profit, net income, and EPS. The company attributes its success to balanced sales growth from both volume and pricing increases across all divisions. Colgate plans to continue investing heavily in advertising, focusing on brand building and long-term growth strategies. For the remainder of 2024, Colgate expects to sustain its momentum with further investments in brand health and capability expansion.
Looking ahead, Colgate updated its full-year 2024 guidance, projecting net sales growth of 2% to 5% and organic sales growth between 6% and 8%. The company also expects continued gross profit margin expansion, double-digit earnings per share growth, and increased advertising investment. Regional performance was notably strong in Latin America, where net sales grew by 7.6%, and in Europe, where operating profit increased by 19%. Overall, the company is confident in its ability to achieve its financial targets and deliver sustainable earnings growth.
Competitive Advantages & Recession Performance
Colgate-Palmolive’s competitive advantage is its extensive product catalog and extremely well-known brands.
This has allowed the company size and scale globally, allowing it to bring products to market quickly and at favorable pricing.
Colgate-Palmolive’s recession record is extraordinary, having posted strong earnings gains during the Great Recession:
- 2007 earnings-per-share of $1.69
- 2008 earnings-per-share of $1.83 (8.3% increase)
- 2009 earnings-per-share of $2.19 (19.7% increase)
- 2010 earnings-per-share of $2.16 (-1.4% decline)
While earnings dipped very slightly in 2010, Colgate-Palmolive clearly performs quite well during times of economic duress.
Colgate-Palmolive has managed to build a portfolio that not only holds up to recessions but thrives during such periods.
Valuation & Expected Returns
We expect 8% earnings-per-share growth in the coming years, and the dividend yield is 2.0% right now. This means earnings growth and dividends could provide returns above 10% per year.
Additionally, shares trade today at 28 times this year’s expected earnings, which is above our fair value estimate of 24 times earnings. Therefore, we expect a -3.5% annual headwind to total returns in the next five years.
This somewhat does not help expected earnings growth and the dividend yield, but total returns are expected to be just 6.5% for the next five years.
The dividend is just 56% of earnings for this year, and we expect the payout ratio to hover around 50% for the foreseeable future.
Therefore, we expect earnings to rise somewhat faster than the dividend. Regardless, we expect Colgate-Palmolive to remain a solid dividend growth stock.
Final Thoughts
Colgate-Palmolive has an impressive history of growing its portfolio over time, and its recent focus on innovation has renewed this growth.
We expect the company to continue growing in the coming years and to see many years of dividend increases as well.
The stock appears slightly overvalued, which could hinder its total return potential. We currently rate Colgate-Palmolive as a hold. If it were to trade lower, it would once again be a buy.
The following articles contain stocks with very long dividend or corporate histories, ripe for selection for dividend growth investors:
- The High Yield Dividend Aristocrats List is comprised of the 20 Dividend Aristocrats with the highest current yields.
- The Dividend Achievers List is comprised of ~400 stocks with 10+ years of consecutive dividend increases.
- The High Yield Dividend Kings List is comprised of the 20 Dividend Kings with the highest current yields.
- The Blue Chip Stocks List: stocks that qualify as Dividend Achievers, Dividend Aristocrats, and/or Dividend Kings
- The High Dividend Stocks List: stocks that appeal to investors interested in the highest yields of 5% or more.
- The Monthly Dividend Stocks List: stocks that pay dividends every month, for 12 dividend payments per year.
- The Dividend Champions List: stocks that have increased their dividends for 25+ consecutive years.
Note: Not all Dividend Champions are Dividend Aristocrats because Dividend Aristocrats have additional requirements like being in The S&P 500. - The Dividend Contenders List: 10-24 consecutive years of dividend increases.
- The Dividend Challengers List: 5-9 consecutive years of dividend increases.
- The Best DRIP Stocks: The top 15 Dividend Aristocrats with no-fee dividend reinvestment plans.
- The High ROIC Stocks List: The top 10 stocks with high returns on invested capital.
- The High Beta Stocks List: The 100 stocks in the S&P 500 Index with the highest beta.
- The Low Beta Stocks List: The 100 stocks in the S&P 500 Index with the lowest beta
- The Complete List of Russell 2000 Stocks
- The Complete List of NASDAQ-100 Stocks