Stock Analysis: Colgate Palmolive

Colgate-Palmolive Company (CL), together with its subsidiaries, manufactures and markets consumer products worldwide. This dividend champion has paid uninterrupted dividends on its common stock since 1895 and increased payments to common shareholders every for 48 consecutive years. The company’s last dividend increase was in February 2011 when the Board of Directors approved a 9.40% increase to 58 cents/share. Colgate-Palmolive ‘s largest competitors include Procter & Gamble (PG), Kimberly-Clark (KMB) and Clorox (CLX).

Over the past decade this dividend growth stock has delivered an annualized total return of 7% to its shareholders.

The company has managed to deliver a 9.40% annual increase in EPS since 2002. Analysts expect Colgate-Palmolive to earn $5.38 per share in 2012 and $5.90 per share in 2013. In comparison Colgate-Palmolive earned $4.94 /share in 2011. The company has managed to consistently repurchase 1.30% of its outstanding shares on average in each year over the past decade.

The company has a very high return on equity of 101%. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.

The annual dividend payment has increased by 13.60% per year over the past decade, which is higher than to the growth in EPS.

A 14% growth in distributions translates into the dividend payment doubling almost every five years. If we look at historical data, going as far back as 1981 we see that Colgate-Palmolive has managed to double its dividend every seven and a half years on average.

The dividend payout ratio has increased from a low of 33% in 2002 to 46% in 2011. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

Currently Colgate-Palmolive is attractively valued at 18.90 times earnings, has a sustainable dividend payout and yields 2.50%. I recently added to my position in the stock, which I find attractively valued on dips below $93.

Full Disclosure: Long CL, PG, CLX, KMB

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