Dividend Kings In Focus: Colgate-Palmolive – Sure Dividend

Up to date on October twenty fourth, 2024 by Felix Martinez

The Dividend Kings are the very best of the very best in terms of returning money to shareholders.

These shares have 50+ 12 months histories of accelerating their dividends to shareholders. Because of their earnings stability and spectacular dividend observe information, they’re usually sought out by long-term revenue traders.

Simply 53 firms qualify as Dividend Kings. You may see all 53 Dividend Kings right here.

It’s also possible to obtain an Excel spreadsheet with the total listing of Dividend Kings (plus metrics that matter, akin to price-to-earnings ratios and dividend yields) by clicking on the hyperlink beneath:

Colgate-Palmolive (CL) is a shopper staples conglomerate that has elevated its dividend for 63 consecutive years, one of many longest streaks in your complete inventory market.

Maybe extra impressively, Colgate-Palmolive has constantly paid dividends on its widespread inventory since 1895.

Colgate-Palmolive has been engaged on growing its progress in recent times. The corporate has made noteworthy progress post-pandemic.

Beneath, we’ll focus on the corporate’s progress prospects, valuation, and dividend.

Enterprise Overview

Colgate-Palmolive was based in 1806 and has constructed a formidable and in depth portfolio of shopper manufacturers. It operates globally, promoting in most nations around the globe.

About one-sixth of its income comes from Hill’s pet meals division, which has proven very robust progress in recent times.

The opposite five-sixths of income comes from a mixture of cleansing and private care merchandise, with the corporate’s most recognizable manufacturers being Colgate (tooth care) and Palmolive (cleaning soap).

Nonetheless, Colgate-Palmolive has constructed a various slate of manufacturers moreover its two namesake manufacturers.

Colgate-Palmolive trades for a $80.1 Billion market cap, producing about $19.5 billion in annual income.

Supply: Investor presentation

Colgate-Palmolive has structured itself into 4 items: Oral Care, Private Care, Residence Care, and Pet Diet.

The corporate has created and bought quite a few manufacturers over time and, extra just lately, has labored to innovate with its finest manufacturers by way of line extensions.

Word: A line extension, brief for ‘product line extension,’ is when a model launches a brand new product in a class the place it already has a presence. A line extension might be a brand new taste, scent, particular ingredient, and so forth.

Beneath, we’ll take a look at the corporate’s progress prospects.

Progress Prospects

We count on Colgate-Palmolive to put up 8% common earnings-per-share progress within the subsequent 5 years, because it has a number of levers it could possibly pull to energy the underside line greater.

Because the firm sells globally, it’s uncovered to foreign exchange translation, which means it’s beholden to many various currencies and their relative worth in opposition to the greenback.

As well as, commodity volatility has typically affected revenue margins, though the corporate has undertaken cost-saving measures to fight this.

One other means Colgate-Palmolive has improved progress is by incorporating true innovation into its portfolio quite than simply making a barely completely different model of an present product.

That has labored nicely for the corporate, too, however the thought is to make use of its huge R&D price range to create new merchandise. Over time, this will result in incremental income progress.

Nonetheless, line extensions nonetheless work fairly nicely for Colgate-Palmolive as a result of it could possibly leverage its extremely recognizable world manufacturers.

Colgate-Palmolive has finished this with quite a few merchandise, with its Optic White Renewal being a very profitable instance.

Lastly, Colgate-Palmolive has concentrated its R&D {dollars} on what it calls “premiumization,” which is transferring up-market with its merchandise, because it did with Optic White.

This has resulted in very robust natural gross sales progress in recent times.

Supply: Investor presentation

Colgate-Palmolive has had fifteen straight quarters at or above the goal natural gross sales progress price of three% to five%. Progress has accelerated in recent times, with the coronavirus pandemic solely being a brief setback.

This can drive a lot of the corporate’s progress within the coming years.

Colgate-Palmolive reported robust monetary outcomes for the second quarter of 2024, with web gross sales growing by 4.9% and natural gross sales up 9.0%. The corporate achieved a 48% rise in GAAP earnings per share (EPS) to $0.89, whereas its base enterprise EPS grew by 18% to $0.91. Colgate’s gross revenue margin improved by 280 foundation factors to 60.6%, and base enterprise gross revenue margin rose by 300 foundation factors to 60.8%. For the primary half of 2024, the corporate generated $1.67 billion in web money from operations, sustaining its world management in toothpaste and handbook toothbrushes with market shares of 41.5% and 32.2%, respectively.

CEO Noel Wallace expressed satisfaction with the corporate’s efficiency, emphasizing its fourth consecutive quarter of gross margin progress and double-digit will increase in working revenue, web revenue, and EPS. The corporate attributes its success to balanced gross sales progress from each quantity and pricing will increase throughout all divisions. Colgate plans to proceed investing closely in promoting, specializing in model constructing and long-term progress methods. For the rest of 2024, Colgate expects to maintain its momentum with additional investments in model well being and functionality enlargement.

Wanting forward, Colgate up to date its full-year 2024 steerage, projecting web gross sales progress of two% to five% and natural gross sales progress between 6% and eight%. The corporate additionally expects continued gross revenue margin enlargement, double-digit earnings per share progress, and elevated promoting funding. Regional efficiency was notably robust in Latin America, the place web gross sales grew by 7.6%, and in Europe, the place working revenue elevated by 19%. Total, the corporate is assured in its skill to attain its monetary targets and ship sustainable earnings progress.

Aggressive Benefits & Recession Efficiency

Colgate-Palmolive’s aggressive benefit is its in depth product catalog and intensely well-known manufacturers.

This has allowed the corporate dimension and scale globally, permitting it to carry merchandise to market rapidly and at favorable pricing.

Colgate-Palmolive’s recession file is extraordinary, having posted robust earnings features through the Nice Recession:

2007 earnings-per-share of $1.69
2008 earnings-per-share of $1.83 (8.3% enhance)
2009 earnings-per-share of $2.19 (19.7% enhance)
2010 earnings-per-share of $2.16 (-1.4% decline)

Whereas earnings dipped very barely in 2010, Colgate-Palmolive clearly performs fairly nicely throughout occasions of financial duress.

Colgate-Palmolive has managed to construct a portfolio that not solely holds as much as recessions however thrives throughout such intervals.

Valuation & Anticipated Returns

We count on 8% earnings-per-share progress within the coming years, and the dividend yield is 2.0% proper now. This implies earnings progress and dividends may present returns above 10% per 12 months.

Moreover, shares commerce at the moment at 28 occasions this 12 months’s anticipated earnings, which is above our truthful worth estimate of 24 occasions earnings. Subsequently, we count on a -3.5% annual headwind to complete returns within the subsequent 5 years.

This considerably doesn’t assist anticipated earnings progress and the dividend yield, however complete returns are anticipated to be simply 6.5% for the following 5 years.

The dividend is simply 56% of earnings for this 12 months, and we count on the payout ratio to hover round 50% for the foreseeable future.

Subsequently, we count on earnings to rise considerably sooner than the dividend. Regardless, we count on Colgate-Palmolive to stay a strong dividend progress inventory.

Ultimate Ideas

Colgate-Palmolive has a formidable historical past of rising its portfolio over time, and its latest deal with innovation has renewed this progress.

We count on the corporate to proceed rising within the coming years and to see a few years of dividend will increase as nicely.

The inventory seems barely overvalued, which may hinder its complete return potential. We at present price Colgate-Palmolive as a maintain. If it have been to commerce decrease, it might as soon as once more be a purchase.

The next articles include shares with very lengthy dividend or company histories, ripe for choice for dividend progress traders: