Colgate Palmolive Delivers a Disappointing Dividend Increase

Colgate-Palmolive Company (CL), 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/share. This marked the 51st consecutive annual dividend increase for this dividend champion.

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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