Colgate’s 2.5% Dividend Yield So-So? Reliable Div Hikes Give Holders Plenty to Smile About
Like any company that’s been around since the 19th century, Colgate-Palmolive (CL) has had its ups and downs. Today, we want to talk about its ups. Specifically, we want to note that the global seller of toothpaste, soap and other personal products has not only paid dividends without interruption since 1895, but has raised its dividend annually for 49 years in a row. Here’s what the last ten years look like:
Colgate’s long string of consecutive dividend increases easily qualifies the consumer-products giant for membership in the group of just over fifty companies, known as “dividend aristocrats,” that are included in the S&P 500 and have raised their dividend annually for at least 25 consecutive years. Such companies are catnip for smart dividend investors, even though the aristocrats tend to offer dividend yield that look modest at first glance. That’s because over time, their dependable increases offer long-term holders surprisingly strong cumulative yields.
These days, for example, Colgate’s dividend yields a moderate 2.55%. But watch how the yearly increases amplify the payout: investors who bought Colgate shares at $60.77 on June 1, 2006, when the dividend was $1.28 a year, got a stock yielding 2.1% . But subsequent hikes have bumped the dividend to $2.48 a year, which makes the present yield on that investment from six years ago a very respectable 4.08%.
Over those same six years, we should probably point out, the price of Colgate shares has also appreciated by 59%, beating the pants off the broad market. Dividend aristocrat shares historically tend to outperform the market, but not so markedly.
Because it’s in the recession-resistant consumer products sector, Colgate’s profits tend to be less volatile than many other companies. Still, it trades punches in markets around the world with giants like Procter & Gamble (PG) and Clorox (CLX), and rising commodity costs can pinch. Recently, Colgate’s heavy promotional spending, combined with unfavorable currency issues, has taken a toll on profit margins. revenue growth has slowed and turned a bit choppy since the economy went sour. Also, since its multiple strengthened in recent months, the stock isn’t as relatively inexpensive as it was last year.
Even so, Colgate continues to offer buy-and-hold dividend investors a dependably increasing payout combined with a solid opportunity for price appreciation. It’s worth a very close look. And the company’s strong cash generation ensures that coverage isn’t an issue.
Of course, when we buy a stock as a dividend play, we are also acquiring the underlying stock as well. Before committing to any security, it makes sense to scrutinize the company’s fundamentals, and to read through its latest 10-K.
Filed under: Company Analysis