Colgate-Palmolive Delivers a Disappointing Dividend Increase

by Dividend Growth Investor | March 17, 2014 10:05 am

Colgate-Palmolive Delivers a Disappointing Dividend Increase

cl Colgate Palmolive Delivers a Disappointing Dividend IncreaseColgate-Palmolive (CL[1]), together with its subsidiaries, manufactures and markets consumer products worldwide. The company operates in two segments: Oral, Personal and Home Care; and Pet Nutrition.

In the past week, the company approved a 5.90% increase in its quarterly dividends to 36 cents per share. This marked the 51st consecutive annual dividend increase for this dividend champion[2].

When I last analyzed the company[3] several weeks ago, I found it to be overvalued. At this stage, I would be reluctant to add to my position in the stock, unless of course it declines from here. It is selling for 26.80 times earnings, and yields 2.30% based on the new dividend.

The latest dividend increase is the slowest since 1980, when the company increased distributions by a mere 3.67%. The company also raised distributions by a mere 6.90% in 2012, but this was followed by a 9.70% increase in the following year.

Year
Quarterly Dividend
Raise
2014
 $       0.3600
5.88%
2013
 $       0.3400
9.68%
2012
 $       0.3100
6.90%
2011
 $       0.2900
9.43%
2010
 $       0.2650
20.45%
2009
 $       0.2200
10.00%
2008
 $       0.2000
11.11%
2007
 $       0.1800
12.50%
2006
 $       0.1600
10.34%
2005
 $       0.1450
20.83%
2003
 $       0.1200
33.33%
2001
 $       0.0900
13.92%
1999
 $       0.0790
14.91%
1997
 $     0.06875
17.02%
1995
 $     0.05875
14.63%
1994
 $     0.05125
13.89%
1993
 $     0.04500
16.13%
1992
 $     0.03875
16.96%
1991
 $     0.03313
17.77%
1989
 $     0.02813
21.67%
1987
 $     0.02312
8.80%
1985
 $     0.02125
6.25%
1983
 $     0.02000
6.67%
1981
 $     0.01875
7.14%
1980
 $     0.01750
3.67%
1979
 $     0.01688
8.07%
1977
 $     0.01562
13.60%

I obtained the data for the table below from Yahoo! Finance. It shows dividend payments in the year they were increased, and the percentage increase from the previous payment.

On a completely unrelated note, did you know that an investment in 1985 would be generating an yield on cost of 99% today? I used Yahoo! Finance data again, but double checked the yields against my manuals from the time, because the 1985 current yields seemed a little high.

However, it seems like Colgate was yielding a lot at the time, but you also need to remember that long-term Treasuries yielded close to 10%  as well. That definitely shows that picking a company with a high current yield that can grow distributions over time at a double digit rate can result in some tremendous compounding of income and invested capital.

Year
DPS
Price
Yield
YOC
2014
 $    1.420
 $  63.380
2.24%
99.17%
2013
 $    1.330
 $  65.210
2.04%
92.89%
2012
 $    1.220
 $  52.270
2.33%
85.20%
2011
 $    1.135
 $  46.195
2.46%
79.27%
2010
 $    1.015
 $  40.185
2.53%
70.89%
2009
 $    0.860
 $  41.075
2.09%
60.06%
2008
 $    0.780
 $  34.270
2.28%
54.47%
2007
 $    0.700
 $  38.980
1.80%
48.89%
2006
 $    0.625
 $  32.620
1.92%
43.65%
2005
 $    0.555
 $  27.425
2.02%
38.76%
2004
 $    0.480
 $  25.580
1.88%
33.52%
2003
 $    0.450
 $  25.025
1.80%
31.43%
2002
 $    0.360
 $  26.215
1.37%
25.14%
2001
 $    0.338
 $  28.875
1.17%
23.61%
2000
 $    0.316
 $  32.275
0.98%
22.07%
1999
 $    0.296
 $  32.415
0.91%
20.64%
1998
 $    0.275
 $  22.878
1.20%
19.21%
1997
 $    0.265
 $  17.870
1.48%
18.51%
1996
 $    0.235
 $  11.021
2.13%
16.41%
1995
 $    0.220
 $    8.196
2.68%
15.36%
1994
 $  0.1925
 $    7.199
2.67%
13.44%
1993
 $  0.1675
 $    6.898
2.43%
11.70%
1992
 $  0.1438
 $    6.019
2.39%
10.04%
1991
 $  0.1275
 $    5.160
2.47%
8.91%
1990
 $  0.1125
 $    3.794
2.97%
7.86%
1989
 $  0.0975
 $    3.176
3.07%
6.81%
1988
 $  0.0925
 $    2.282
4.05%
6.46%
1987
 $  0.0869
 $  1.8400
4.72%
6.07%
1986
 $  0.0850
 $  1.8550
4.58%
5.94%
1985
 $  0.0813
 $  1.4319
5.67%
5.67%

The company earned $2.38 per share in 2013, and is expected to earn $3.01 in 2014 and $3.32 in 2015.

However, I believe that dividend increases are decisions by the Board of Directors, which show their expectations for profit growth in the next 1 – 2 years. The decrease in dividend growth shows that management does not expect double digit earnings increases in the near term. I do think that this is a temporary situation however, and the Board will increase distributions by close to 8-9%/year over the next 5 – 10 years.

The company still has strong competitive advantages[4], pricing power and a portfolio of branded products, which consumers buy regularly for decades.

That being said, I would hold on to my existing Colgate – Palmolive shares but would probably allocate my dividends elsewhere[5], where I can find better values for my money.

Full Disclosure: Long CL

Endnotes:
  1. CL: http://studio-5.financialcontent.com/investplace/quote?Symbol=CL
  2. dividend champion: http://www.dividendgrowthinvestor.com/2011/02/dividend-champions-best-list-for.html
  3. I last analyzed the company: http://www.dividendgrowthinvestor.com/2014/02/colgate-palmolive-cl-dividend-stock.html
  4. strong competitive advantages: http://www.dividendgrowthinvestor.com/2011/10/seven-wide-moat-dividends-stocks-to.html
  5. allocate my dividends elsewhere: http://www.dividendgrowthinvestor.com/2009/07/reinvest-dividends-selectively.html

Source URL: http://investorplace.com/2014/03/colgate-palmolive-cl-dividend-increase/
Short URL: http://invstplc.com/1ohCZnv