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Linked here (PDF) is a detailed quantitative analysis of Colgate-Palmolive (CL). Below are some highlights from the above linked analysis.

Company Description

Colgate-Palmolive is a major consumer products company that markets oral, personal, household care, and pet nutrition products in more than 200 countries and territories.

Fair Value

In calculating fair value, I consider the NPV MMA Differential Fair Value along with these four calculations of fair value (see page 2 of the above-linked PDF for a detailed description):

  1. Avg. High Yield Price
  2. 20-Year DCF Price
  3. Avg. P/E Price
  4. Graham Number

CL is trading at a premium to all four valuations above. Since Colgate's tangible book value is not meaningful, a Graham number cannot be calculated. The stock is trading at a 20.1% premium to its calculated fair value of $47.68. CL did not earn any Stars in this section.

Dividend Analytical Data

In this section, there are three possible Stars and three key metrics (see page 2 of the above-linked PDF for a detailed description):

  1. Free Cash Flow Payout
  2. Debt to Total Capital
  3. Key Metrics
  4. Dividend Growth Rate
  5. Years of Div. Growth
  6. Rolling Four-Year Div. > 15%

CL earned two Stars in this section for Nos. 1 and 3 above. A Star was earned since the Free Cash Flow payout ratio was less than 60% and there were no negative Free Cash Flows over the last 10 years. CL earned a Star for having an acceptable score in at least two of the four Key Metrics measured. The company has paid a cash dividend to shareholders every year since 1895 and has increased its dividend payments for 50 consecutive years.

Dividend Income Vs. MMA

Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA) or Treasury bond? This section compares the earning ability of this stock with a high-yield MMA. Two items are considered in this section (see page 2 of the above-linked PDF for a detailed description):

  1. NPV MMA Diff.
  2. Years to > MMA

CL earned a Star in this section for its NPV MMA Diff. of the $1,109. This amount is in excess of the $500 target I look for in a stock that has increased dividends as long as CL has. If CL grows its dividend at 9.5% per year, it will take two years to equal an MMA yielding an estimated 20-year average rate of 2.71%. CL earned a check for the key metric Years to >MMA since its two years is less than the five-year target.

Memberships and Peers

CL is a member of the S&P 500, a Dividend Aristocrat, a member of the Broad Dividend Achievers™ Index, and a Dividend Champion. The company's peer group includes Procter & Gamble (PG), with a 3.1% yield; Kimberly-Clark (KMB), with a 3.4% yield; and Clorox (CLX), with a 3.1% yield.

Conclusion

CL did not earn any Stars in the Fair Value section, earned two Stars in the Dividend Analytical Data section, and earned one Star in the Dividend Income vs. MMA section for a total of three Stars. This quantitatively ranks CL as a three-Star Hold stock. Using my D4L-PreScreen.xls model, I determined the share price would need to increase to $77.55 before CL's NPV MMA Differential decreased to the $500 minimum that I look for in a stock with 50 years of consecutive dividend increases. At that price the stock would yield 1.8%.

Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $500 NPV MMA Differential, the calculated rate is 6.6%. This dividend growth rate is only slightly lower than the 9.5% used in this analysis, thus providing no margin of safety. CL has a risk rating of 1.75, which classifies it as a medium-risk stock.

Demand for household and personal care products is generally stable and not affected by changes in the economy. About 80% of CL's sales come from outside the U.S., with over 50% from emerging markets. Unprecedented promotional spending throughout the household and personal care industry and significant cost inflation has weighed heavily on CL's gross margins. Long term, CL's stringent focus on cost management help it to manage through future competitive challenges.

Debt to total capital has risen since my January 2013 review to 75% from 68%. Free cash flow payout at 47% is well below my maximum. With a calculated fair value of $47.68, CL is trading at a 20.1% premium. When I combine the above with a current yield well below my minimum, I will continue to stay on the sidelines for now.

Disclosure: At the time of this writing, I held no position in CL (0.0% of my Dividend Growth Portfolio). I hold positions in PG and KMB. See a list of all my dividend growth holdings here.

Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my full disclaimer for more information.

Source: Colgate-Palmolive Dividend Stock Analysis