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Summary

  • Colgate-Palmolive raised dividends by less than 6% last week, marking 51st consecutive annual dividend increase.
  • This was the slowest dividend increase since 1980. The stock is also overvalued today, but I expect dividend growth to pick up.
  • I do not plan on adding more in the near future but will just hold on to my position waiting for better entry prices...

Colgate-Palmolive Company (NYSE: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.

YearQuarterly DividendRaise
2014$ 0.36005.88%
2013$ 0.34009.68%
2012$ 0.31006.90%
2011$ 0.29009.43%
2010$ 0.265020.45%
2009$ 0.220010.00%
2008$ 0.200011.11%
2007$ 0.180012.50%
2006$ 0.160010.34%
2005$ 0.145020.83%
2003$ 0.120033.33%
2001$ 0.090013.92%
1999$ 0.079014.91%
1997$ 0.0687517.02%
1995$ 0.0587514.63%
1994$ 0.0512513.89%
1993$ 0.0450016.13%
1992$ 0.0387516.96%
1991$ 0.0331317.77%
1989$ 0.0281321.67%
1987$ 0.023128.80%
1985$ 0.021256.25%
1983$ 0.020006.67%
1981$ 0.018757.14%
1980$ 0.017503.67%
1979$ 0.016888.07%
1977$ 0.0156213.60%

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 a 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.

YearDPSPriceYieldYOC
2014$ 1.420$ 63.3802.24%99.17%
2013$ 1.330$ 65.2102.04%92.89%
2012$ 1.220$ 52.2702.33%85.20%
2011$ 1.135$ 46.1952.46%79.27%
2010$ 1.015$ 40.1852.53%70.89%
2009$ 0.860$ 41.0752.09%60.06%
2008$ 0.780$ 34.2702.28%54.47%
2007$ 0.700$ 38.9801.80%48.89%
2006$ 0.625$ 32.6201.92%43.65%
2005$ 0.555$ 27.4252.02%38.76%
2004$ 0.480$ 25.5801.88%33.52%
2003$ 0.450$ 25.0251.80%31.43%
2002$ 0.360$ 26.2151.37%25.14%
2001$ 0.338$ 28.8751.17%23.61%
2000$ 0.316$ 32.2750.98%22.07%
1999$ 0.296$ 32.4150.91%20.64%
1998$ 0.275$ 22.8781.20%19.21%
1997$ 0.265$ 17.8701.48%18.51%
1996$ 0.235$ 11.0212.13%16.41%
1995$ 0.220$ 8.1962.68%15.36%
1994$ 0.1925$ 7.1992.67%13.44%
1993$ 0.1675$ 6.8982.43%11.70%
1992$ 0.1438$ 6.0192.39%10.04%
1991$ 0.1275$ 5.1602.47%8.91%
1990$ 0.1125$ 3.7942.97%7.86%
1989$ 0.0975$ 3.1763.07%6.81%
1988$ 0.0925$ 2.2824.05%6.46%
1987$ 0.0869$ 1.84004.72%6.07%
1986$ 0.0850$ 1.85504.58%5.94%
1985$ 0.0813$ 1.43195.67%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.

Disclosure: I am long CL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.