Colgate's Dividend Strategy - Analyst Blog

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Colgate-Palmolive Company ( CL ) has a history of paying regular quarterly dividends since 1895, clearly illustrating its strong fundamentals. Since then, the company has never looked back and managed to pay out dividends every quarter even in the economic downturns that faced the world, like the Great Depression of 1930's stagflation in the 1970's, and the most recent financial crisis of 2008.

Besides paying regular dividends, the company's focus has always been on steadily increasing its dividend rate every year for about 49 years now. Colgate-Palmolive continued its trend of raising dividend every year with a 7% hike in quarterly dividend announced a couple of weeks back.

The new dividend of 62 cents per share, which will be paid in the second quarter 2012, was up 16 cents from the first quarter of 2012 dividend of 58 cents per share. The increase in quarterly dividend brings the company's annualized dividend to $2.48 per share, currently yielding 2.6%.


Colgate's quarterly dividend payment rate, which has now reached 62 cents per share, has grown by a whopping 427% in the last 15 years, up from a quarterly dividend from 11.75 cents paid in 1996. Further, the company's dividend increase trend since 2003 reflects its policy of raising dividend effective from the second quarter every year.

Dividends or cash distributions are generally a portion of the company's profits, after reinvestments, which are distributed to its shareholders. For investors, these dividends, in general, point to the financial well-being of the company, and hints good future prospects and performance.

Additionally, dividends attract investors, who seek for a stable income. A company's keenness on paying regular dividends or on boosting dividends over a period of time has the power to positively impact its stock price, whereas scaling back dividends can have unfavorable effects.

Reasons for Colgate's Dividend Prosperity

An increase or decrease in dividend rate usually reflects the amount of profit that the company is making in a given period of time. From this perspective, the company has continued to post strong financial results over the past several years. Colgate's fourth-quarter 2011 earnings of $1.30 per share came ahead of the Zacks Consensus Estimate, and climbed nearly 5% from the prior-year quarter.

Colgate-Palmolive is the industry leader in oral care and commands market-leading positions in several personal care product categories. Furthermore, a strong portfolio of globally recognized brands, including Colgate, Palmolive, Mennen, Softsoap, Irish Spring, Protex, Sorriso, Kolynos, Elmex, Ajax and Axion provide a competitive advantage to the company and strengthens its dominant position in the market.

Since inception, Colgate's business has been flourishing and the company is continuously expanding all its operations. One of the prime reasons for this is that a person's need to maintain personal hygiene is imperative and none will forego this in the worst of situations. This gives Colgate's business the advantage of being in demand even during an economic downturn.

Further, Colgate is in good financial shape with cash and cash equivalents of $878 million, total debt of $4,810 million and shareholders' equity of $2,375 million as of the fiscal year-end 2011. The company's solid financial position as of the year-end reflects management's conservative approach, which gives room for returning value to shareholders at all times. During the year, the company paid $1,203 million in dividend compared with $1,142 million in 2010.

Conclusion

Going forward, we see bright prospects for the leader in oral care products and one of the leading producers of personal care products, given its strong products portfolio, continued earnings strength and solid financial position. In addition, the company's recent acquisition and divestment transactions will also provide a cushion to its bottom line. Given the company's history of continuously raising dividends and its positive outlook, we do not expect the growth in dividends to stop here.

Colgate-Palmolive competes with Procter & Gamble Company ( PG ) and Church & Dwight Company Inc. ( CHD ). The company retains a Zacks #4 Rank, which translates into a short-term Sell rating. Our long-term recommendation on the stock remains Neutral.


 
CHURCH & DWIGHT ( CHD ): Free Stock Analysis Report
 
COLGATE PALMOLI ( CL ): Free Stock Analysis Report
 
PROCTER & GAMBL ( PG ): Free Stock Analysis Report
 
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: CHD , CL , PG

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