When I last analyzed the company 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/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, 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, where I can find better values for my money.
Full Disclosure: Long CL
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2014 is starting to seem more like 1980 in other ways too.
ReplyDeleteDGI,
ReplyDeleteI'm not overly concerned about the small dividend raise. We see this from time to time. WMT and AFL are some recent examples.
However, this stock is just plain too expensive for me right now. It's a company that I would LOVE to own equity in, but it's always been wrong price, wrong time for me.
Best wishes!