Colgate-Palmolive Delivers A Disappointing Dividend Increase

| About: Colgate-Palmolive Co. (CL)

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.

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%
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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.

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%
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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.