Colgate-Palmolive Company (CL) Dividend Stock Analysis For 2017

The toothpaste market is characterized by high penetration by branded products, as few people are going to save a few cents and put an unknown paste on their teeth. In addition there is brand loyalty, which results in recurring revenue streams from millions of customers worldwide. The company also has wide global reach, and large scale of operations. The strong brands, customer loyalty and global scale of operations are indicative of a wide moat for this company. That being said, there is a high level of competition in the company’s product lines.

The annual dividend payment has increased by 9.50% per year over the past decade, which is higher than the growth in EPS. This was accomplished through the expansion of the dividend payout ratio. Future growth will be limited by any growth in earnings per share.

An 11% growth in distributions translates into the dividend payment doubling every six and a half years on average. Since 1985, Colgate-Palmolive Company (NYSE:CL) has been able to double dividends every seven years on average.

The dividend payout ratio increased from 43.40% in 2007 to almost 57% in 2016. 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, the stock is overvalued, as it trades at a forward P/E of 25.40 and yields only 2.15%. Due to the high valuation and the lack of significant earnings growth as of recently, I am not interested in adding to this position at the time. I may be interested in the company on dips below the $54 – $58/share range.

Full Disclosure: Long CLX, PG, KMB, CL

Additional Links:

(1) http://www.dividendgrowthinvestor.com/2016/03/what-should-i-do-about-slowing-dividend.html

(2) http://www.dividendgrowthinvestor.com/2015/04/dividend-growth-stocks-increase.html