Colgate-Palmolive (CL) Dividend Stock Analysis

Colgate-Palmolive Company (CL), together with its subsidiaries, manufactures and markets consumer products worldwide. It operates in two segments, Oral, Personal, and Home Care; and Pet Nutrition. The company recently increased its quarterly dividend by 20.40% to 53 cents/share. This is the forty-seventh consecutive dividend increase for Colgate-Palmolive, which is a dividend champion.

Over the past decade this dividend stock has returned 4.30% per annum.

Earnings per share have increased by 11.10% on average since 2000. Since 2000 the number of shares outstanding has decreased from 625 million to 525 million, or an average decrease of 1.90% annually. Analysts estimate that EPS would grow by 9.80% to $4.80 in FY 2010. FY 2011 EPS are expected to increase by 11.40% from there to $5.35.

Sales outside North America accounted for two-thirds of the company’srevenues. The company’s strong competitive advantages in the oral healthcare field plus the low capital requirements have enabled it to generate high returns on capital.

Returns on Equity have been truly phenomenal, having never fallen below 80% since 2000.

Annual dividends have increased by 11.80% on average over the past decade, which is slightly higher than the growth in earnings.

A 12 % growth in dividends translates into the dividend payment doubling every six years on average. If we look at historical data, going as far back as 1976, Colgate Palmolive has actually managed to double its dividend payment every eight and a half years on average.

The dividend payout ratio has consistently remained below 50%, with the exception of a brief spike to 50.80% in 2006. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

The company trades at a P/E of 18.80 times earnings and has an adequately covered dividend payment. The current yield of 2.60% is below my 3% entry threshold. If we look at the yield from the past decade however, CL has yielded more than 3% only during the lows in early 2009. Because of this I initiated a position in Colgate recently. I would look forward to add to this position on dips below $71, which would be my ideal entry price.

Full Disclosure: Long CL

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Seven dividend aristocrats that Buffett owns

Warren Buffett is arguably the best investor in the world. His main holding, Berkshire Hathaway (BRK.B) has delivered market beating returns during his leadership. Buffett’s strategy is characterized by purchasing stocks which have a long-term durable competitive advantage in a stable industry. Buffett then holds on to these companies and reinvests distributions either back into the business or by purchasing new businesses. In a previous article I mentioned that Berkshire’s portfolio has likely generated over $1.30 billion in dividends in 2009. Some of its holdings included seven dividend aristocrats.

Stocks which are included in the dividend aristocrat’s index represent companies which have raised dividends for over 25 years in a row. The companies included in the index represent some of the world’s most recognizable brands such as Coca Cola (KO), McDonald’s (MCD) or Procter & Gamble (PG). They have strong durable advantages, which have allowed them to increase profits and share the wealth with shareholders by consistently raising distributions, through several economic crises, oil shocks and asset bubbles. In addition to that these wide-moat companies derive substantial portions of their revenues globally, which makes them somewhat immune to local economic downturns.

I believe that by combining Buffett’s strategy of purchasing the companies with strong competitive advantages with my dividend growth strategy would produce exceptional results for enterprising dividend investors. The dividend stocks in Berkshire’s portfolio include:

Becton, Dickinson and Company (BDX), a medical technology company, which develops, manufactures, and sells medical supplies, devices, laboratory equipment, and diagnostic products worldwide. The company has increased its quarterly dividend in each of the past thirty-seven years. (analysis)

The Coca-Cola Company (KO) manufactures, distributes, and markets nonalcoholic beverage concentrates and syrups worldwide. It principally offers sparkling and still beverages. The company has increased distributions for 47 consecutive years. I would be a buyer of KO below $54.66. Check my analysis of the stock.

Exxon Mobil Corporation (XOM) engages in the exploration, production, transportation, and sale of crude oil and natural gas. The company is a component of the S&P 500, Dow Jones Industrials and the Dividend Aristocrats indexes. Exxon Mobil has been consistently increasing its dividends for 27 consecutive years. I would only be a buyer of XOM on dips below $60. Check my analysis of the stock.

Johnson & Johnson (JNJ) engages in the research and development, manufacture, and sale of various products in the health care field worldwide. The company has boosted distributions to shareholders for 47 years in a row. I would be a buyer of JNJ below $65.33. Check my analysis of the stock.

Lowe’s Companies (LOW) is one of the original components of the Dividend Aristocrats . The home improvement retailer which operates the United States and Canada has increased its dividends for 47 consecutive years.

The Procter & Gamble Company (PG) engages in the manufacture and sale of consumer goods worldwide. The company operates in three global business units (GBUs): Beauty, Health and Well-Being, and Household Care. The company has rewarded stockholders with dividend increases for 53 consecutive years. I would be a buyer of PG below $58.67. Check my analysis of the stock.

Wal-Mart Stores, Inc. (WMT) operates retail stores in various formats worldwide. The world’s largest retailer has a 35 year record of annual dividend raises. I would be a buyer of WMT on dips. Check my analysis of the stock.

Full Disclosure: Long KO, JNJ, PG and WMT

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Four notable dividend increases

Three well-known dividend aristocrats raised dividends last week. The companies include Coca-Cola (KO), Abbott Labs (ABT) and Sherwin-Williams (SHW). Another promising dividend raiser included Swiss Company Nestle (NSRGY). In dividend investing it is important not only to concentrate on companies with solid competitive advantages, but also ones which grow earnings and dividends along the line.

The Coca-Cola Company (KO) manufactures, distributes, and markets nonalcoholic beverage concentrates and syrups worldwide. The company’s board of directors recently approved the Company's 48th consecutive annual dividend increase, raising the quarterly dividend approximately 7 percent from $0.41 to $0.44/share. This dividend aristocrat currently yields 3.20%. (analysis)

Abbott Laboratories (ABT) manufactures and sells health care products worldwide. The company’s board of directors increased its quarterly dividend by 10% to 44 cents/share. This marks the 38th consecutive year that Abbott has increased its dividend. This dividend aristocrat currently yields 3.20%. (analysis)

Nestle (NSRGY) engages in the nutrition, health and wellness sectors. The company is proposing a dividend increase of 14.3% to CHF 1.60/share ($1.477). This international dividend achiever has raised distributions each year since 1997. The stock currently yields 3%.

The Sherwin-Williams Company (SHW) engages in the development, manufacture, distribution, and sale of paints, coatings, and related products. The company boosted its quarterly dividend by 1.40% to 36 cents/share. This marks the thirty-second consecutive annual dividend increase for this dividend aristocrat. The stock currently yields 2.20%.(analysis)

Of the four stocks mentioned, Coca-Cola (KO) and Abbott Labs (ABT) are attractively valued at the moment. Sherwin-Williams (SHW) not only has a low current yield but also the last two dividend increases have been disappointing, making the stock a hold. Nestle (NSRGY) does look like a promising candidate for addition to a dividend growth portfolio, since it would also bring in some international diversification. I would place it on my list for further research.

Full Disclosure: Long ABT and KO

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McGraw-Hill (MHP) Dividend Stock Analysis

The McGraw-Hill Companies, Inc. provides information services and products to the financial services, education, and business information markets worldwide. The company operates in three segments: McGraw-Hill Education, Financial Services, and Information & Media. Just a few weeks ago this dividend aristocrat increased its quarterly dividend by 4.40% to 23.50 cents per share, which was the 37th consecutive annual dividend increase for the company.
The stock has delivered an average annual total return of 10.20% over the past decade.

Earnings per share have grown at an average pace of 7.60% per annum. The company has also has repurchased 2.80% of its outstanding stock annually on average since 2001. For FY 2010, analysts expect the company to earn $2.63/share, which is higher than 2008’s EPS of $2.33. For FY 2011 analysts expect McGraw-Hill to earn $2.95/share. A reduction in the amount of debt being offered could affect the company’s Financial Services segment, which accounts for almost three quarters of its operating profit. Changing regulations and competitive environment could also affect this major segment, which includes the Standard & Poors brand. The remaining 16% and 7% of operating profits are achieved from the company’s education and media segments.


Annual dividends per share have increase by an average of 7.50% annually, which is in line with the growth in earnings. A 7.50% growth in dividends translates into the payment doubling every almost ten years. McGraw-Hill has managed to double its distributions every eleven years on average since 1988.

The return on equity has fluctuated between a low of 12.80% in 2006 and a high of 55.30% in 2008. Over the past few years it has remained above 30%, which is impressive.


The dividend payout ratio has consistently remained below 50%. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

McGraw-Hill currently trades at 14.50 times earnings, has an adequately covered dividend, and yields 2.60. I would consider adding to my position in McGraw-Hill on dips below $31.30.

Full Disclosure: Long MHP


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Ten Dividend Kings raising dividends for over 50 years

Many dividend investors focus on the dividend aristocrats, the dividend champions and the dividend achievers lists, as a starting point in their research. While most investors picture dividend stocks as slow growth and boring utility stocks, the three lists portray a different perspective. The dividend achievers list, which focuses on companies which have raised distributions for at least 10 consecutive years, consists of slightly less than 300 individual issues representing almost all industry groups out there. The dividend aristocrats list, which features companies which have boosted distributions for over a quarter of a century, is also sector-diversified. The dividend champions list also focuses on companies which have raised distributions for over a quarter of a century. I find the champions list more inclusive, whereas the aristocrats list has not included certain companies despite the fact that they have increased distributions for over 25 years in a row. Sometimes it is challenging to determine the actual record of dividend raises, especially when two companies merge.

I was amazed to find several companies on the dividend king list, which have raised distributions for over 50 consecutive years. A dividend king is a company that has increased dividends for at least 50 years in a row. The companies include:

Diebold (DBD) engages in the development, manufacture, sale, installation, and service of automated self-service transaction systems, electronic and physical security systems, and election systems and software worldwide. The company recently boosted its dividend for the 57th year in a row. Yield 3.70%.

American States Water Company (AWR), through its subsidiaries, provides water and electric utility services to residential and commercial customers in the United States. The company engages in the purchase, production, and distribution of water. The company has raised distributions for 55 years in a row. Yield 3.20%.

Dover Corporation (DOV), together with its subsidiaries, manufactures industrial products and components, as well as provides related services and consumables in the United States and internationally. Dover has raised its payout for 54 consecutive years. Yield 3.20%.(analysis)

Northwest Natural Gas Company (NWN), doing business as NW Natural, engages in the storage and distribution of natural gas in Oregon, Washington and California. The company operates in two segments, Local Gas Distribution and Gas Storage. This utility company has increased dividends for 54 years in a row. Yield 3.90%.

Genuine Parts Company (GPC) distributes automotive and industrial replacement parts, office products, and electrical/electronic materials in the United States, Canada, and Mexico. It has four segments: Automotive, Industrial, Office Products, and Electrical/Electronic Materials. The company has consistently boosted dividends for 53 years in a row. Yield 4.20%.

The Procter & Gamble Company (PG) engages in the manufacture and sale of consumer goods worldwide. The company operates in three global business units (GBUs): Beauty, Health and Well-Being, and Household Care. The company has increased dividends for 53 years in a row. Yield 2.80%. (analysis)

Emerson Electric Co. (EMR), a diversified global technology company, engages in designing and supplying product technology, as well as delivering engineering services and solutions to various industrial, commercial, and consumer markets worldwide. Yield 2.90%. (analysis)

3M Company, (MMM) together with its subsidiaries, operates as a diversified technology company worldwide. It operates in six segments: Industrial and Transportation; Health Care; Safety, Security and Protection Services; Consumer and Office; Display and Graphics; and Electro and Communications. The company has raised distributions for 51 years in a row. Yield 2.70%.(analysis)

Integrys Energy Group, Inc. (TEG), through its subsidiaries, operates as a regulated electric and natural gas utility company in the United States and Canada. This utility company has increased dividends for 51 years in a row. Yield 6.60%.

Vectren Corporation (VVC) provides energy delivery services to residential, commercial, and industrial and other customers in Indiana and Ohio. This utility company has increased dividends for 50 years in a row. Yield 6.00%.

I did check with the Moody’s dividend achievers handbook and each company’s website in order to confirm whether the companies have actually raised distributions for 50 years in a row. I didn’t include Parker-Hannifin Corporation (PH), despite the fact that it was on the champions list, because it failed to increase dividends in 1991.

(Update in 2017: Note that Parker-Hannifin's track record is based upon dividend payments for its Fiscal Year rather than the Calendar Year. The fiscal year runs from July 1 to June 30.

Therefore, the FY 2015 dividend was $2.37/share ( one dividend payment of 48 cents/share plus three dividend payments of 63 cents/share).

The FY 2016 dividend was $2.52/share ( four dividend payments of 63 cents/share)

The FY 2017 dividend was $2.58/share ( two dividend payments of 66 cents/share plus two dividend payments of 63 cents/share)

Because of the use of Fiscal Years, rather than Calendar Years, I excluded Parker - Hannifin from the first list of dividend kings that I compiled in 2010.)

Just because a company has raised distributions for 50 years does not necessarily mean that it would continue raising them for over a decade. Back in early 2000’s Winn-Dixie (WINN) had the longest record of dividend increases, after boosting its payout for over 56 years. The company was losing market share however and was heavily leveraged, which ultimately lead to its filing for chapter 11 protection and wiping out all shareholders equity in the process.

The positive factor in the story is that there is a chance that some of the best dividend stocks of today which are included in the dividend achievers or the dividend aristocrats lists could end up raising distributions for 40 more years. Even if a company drops from one of those elite dividend indexes, it typically does so either because it is acquired by a competitor at a handsome premium or because it simply freezes distributions. Kellogg’s (K) is a nice example of a company which had raised distributions for over 44 years, before freezing distributions in 2001. The company then started raising distributions again in 2005 and has been boosting its payout ever since.

Full Disclosure: Long EMR, MMM, PG,

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