I’m currently producing 4 stocks analyses in succession, all within the consumer product industry. The first stock of this block was Clorox (CLX). Today’s dividend growth stock is Colgate Palmolive (CL). The following 2 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. 75% of Colgate Palmolive’s sales come from outside theUSA. CL is basically 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 also 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 5 principles:
- Promoting healthier lives
- Contributing to the community
- Delivering products that respect our planet
- Reducing water consumption
- 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 6 years. The payout ratio is relatively low (49.49%) which leads me to think that CL has a lot of room to keep increasing its dividend over the upcoming years.
CL Ratios and Financial Info:
Ticker CL US Equity
Dividend Metrics
Current Dividend Yield 2.3
5 year Dividend Growth 12.03
1 year Dividend Growth 8.11
Company Metrics
Sales Growth (1 year) 7.52
Sales Growth (5 year) 4.88
EPS growth (5 year) 10.55
P/E ratio 20.98
P/E Next Year 18.4
Margins growth 0.91
Payout ratio 49.49
Return on Equity 96.28
Debt to Capital Ratio 0.1
CL financial metrics show very good numbers. From sales growth (4.88% over the past 5 years) to Earnings per share growth (10.55% for the past 5 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 vs 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. They are 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 6-7%. Also, since Colgate toothpaste has been massively popular in emerging markets for several years, we can also consider that the future growth won’t be as spectacular as we have seen previously.
Its sales growth in the States is fairly low (under 3%) 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 6-7% growth target for 2012. While this can’t be considered as 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
In a result of my analysis, I would be tempted to consider Colgate as a good stock in a dividend portfolio but considering more for its ability to increase its dividend than its ability to grow its business overseas. I think the current P/E ratio may be a little bit too high considering a growth slowdown in Latin America and other countries.
If you look back at the past 5 years, this company shows brilliant results. My question is more whether they can keep up this pace and if not, am I paying too much at a 20 P/E ratio?
Disclaimer: I do not hold position of CL at this time.
I think for the long term Colgate will be a strong pick as a growing dividend stock. I am also going to keep an eye on the P/E ratio as it is a bit high.
Wow…excellent analysis. I now really like this stock. Would fit well in my hold forever, good and strong dividend paying stocks, portfolio!Thank you.
Hey Michel,
wait for the next 2 stocks to be analyzed in the same industry : KMB and PG. I’m on a stock analysis frenzy lately, lol!