Colgate-Palmolive (NYSE:CL) shares hit a landmark and an all-time high Tuesday, crossing the $100-per-share threshold and sitting above $101 by midday.
The company, which began in 1806 as William Colgate & Company and officially became Colgate-Palmolive in 1953, is now a consumer-products giant worth almost $50 billion.
True, selling toothpaste and cleaning products doesn’t make Colgate an exciting company, but it has produced consistent results for shareholders. For the past five years, the average return on CL shares has been more than 10%.
So should you buy Colgate stock? To decide, let’s take a look at the pros and cons:
Great Portfolio: Colgate has two product segments. The first is Oral, Personal and Home Care, which includes most of the big-ticket names people are familiar with, including Colgate toothpaste and brushes, Palmolive soaps and Speed Stick deodorants, as well as shampoos and conditioners.
The other segment is Hill’s Pet Nutrition, a premium line of pet foods that is marketed across 95 countries. This includes the brands Hill’s Science Diet, which essentially is everyday food, and Hill’s Prescription Diet, which is food targeted toward pets with diseases.
Emerging Markets: More than half of Colgate’s sales come from this category. The company had the foresight to make substantial investments over the past couple decades to build out businesses in countries like China, Brazil, Vietnam, India, Thailand and Malaysia. This strategy should continue to produce long-term growth and protect the company from oscillations in any particular nation.
Dividend: Colgate-Palmolive is a Dividend Aristocrat that has paid out dividends since 1895. The current dividend is 62 cents, for an attractive 2.5% yield. And there should be little problem maintaining (and growing) it, considering Colgate generated $662 million in operating cash flows and has more than $1 billion sitting around.
Pricing: Even though demand tends to be stable for Colgate, there are pressures on pricing. The strong growth of deep discounters, like Dollar General (NYSE:DG) and Family Dollar (NYSE:FDO), has been a major factor. Colgate-Palmolive also faces competition from top consumer companies like Proctor & Gamble (NYSE:PG) and Clorox (NYSE:CLX).
Hill’s Pet Nutrition: Colgate’s pet food subsidiary has been a laggard. In the most recent quarter, net sales fell by 1.5%, with much of the weakness coming in North America. While the company has been trying to innovate the product line, the efforts have not been finding much traction with consumers.
Valuation: The run-up obviously has had its effect here, with CL shares trading at a frothy 20 times trailing 12-month earnings and a slightly better 17 on 2013 earnings.
Colgate definitely sparkled in its latest quarter, as organic sales grew by 6.5% and emerging markets seeing an 11.5% ramp-up.
Colgate makes the kinds of products that people buy regardless of the economic environment. So if the global economy gets weaker, CL should continue to be a reliable performer as investors look for safe havens. Consider that the stock only fell 30% from the start of 2008 through the depths of the financial crisis, while the broader markets shed more than 50%. And if the global economy gets stronger, Colgate-Palmolive investors should be in for steady gains.
Meanwhile, you get to sit on a dividend that has been paid out since the 18th century.
So should you buy Colgate-Palmolive? Yes — for now, the pros outweigh the cons on the stock.
Tom Taulli runs the InvestorPlace blog IPO Playbook, a site dedicated to the hottest news and rumors about initial public offerings. He also is the author of “The Complete M&A Handbook”, “All About Short Selling” and “All About Commodities.” Follow him on Twitter at @ttaulli or reach him via email. As of this writing, he did not own a position in any of the aforementioned securities.