The Best Blue Chip?: Colgate-Palmolive Company (CL), The Coca-Cola Company (KO)

Last but not least, Colgate-Palmolive has the lowest free cash flow payout ratio of the group. Since these companies are widely bought for their dividend income, the safety of the dividend is of particular importance. In the current quarter, Colgate-Palmolive’s free cash flow payout ratio was 48.54%. Procter & Gamble came very close to this measure at 51.23%. Unilever is further from the mark at 68.29%, and Clorox reported a payout ratio of 121.74%, by far the highest of the group.

What About Yield, Doesn’t That Matter?
Some investors see Colgate-Palmolive’s 2.3% yield, and are not impressed compared to the competition. However, yield isn’t everything. For instance, Unilever has the highest yield at 3.26%, but the lowest growth rate, lowest margin, and second highest free cash flow payout ratio. In theory, it would take Unilever ramping up their growth rate, and improving their gross margin for the company to produce growth and cash flow like Colgate-Palmolive. Though the current yield is higher, over time, it’s likely that Colgate-Palmolive’s yield will grow faster.

While Clorox and Procter & Gamble have yields of 3.16% and 2.94% respectively, their payout ratios are higher than Colgate-Palmolive. Clorox and Procter & Gamble also are not expected to grow as fast. Clorox has the additional handicap of carrying the second lowest gross margin. The bottom line is, Colgate-Palmolive has multiple class leading traits, and the fastest growth rate to boot. If investors want the best blue chip for the long run, Colgate-Palmolive could be that stock.

The article The Best Blue Chip? originally appeared on Fool.com and is written by Chad Henage.

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