Linked here is a PDF copy of my detailed analysis of Colgate Palmolive (NYSE:CL) (alt.1, alt.2). Below are some highlights from the above linked analysis:
Company Description: Colgate-Palmolive Company (Colgate) is a consumer products company, whose products are marketed throughout the world. Colgate’s Oral Care products include toothpaste, toothbrushes, oral rinses, dental floss and pharmaceutical products.
Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description:
- Avg. High Yield Price
- 20-Year DCF Price
- Avg. P/E Price
- Graham Number
CL is trading at a premium to all four valuations above. Since CL's tangible book value is not meaningful, a Graham number can not be calculated. If I exclude the high and low valuations and average the remaining two, CL is trading at a 51.1% premium. CL had a Star deducted for trading at a premium in excess of 5%.
Dividend Analytical Data: In this section I consider five factors, see page 2 of the linked PDF for a detailed description:
- Rolling 4-yr Div. > 15%
- Dividend Growth Rate
- Years of Div. Growth
- 1-Yr. > 5-Yr Growth
- Payout 15% of avg.
CL earned one Star in this section for 3.) above. CL has paid a cash dividend to shareholders every year since 1895 and has increased its dividend payments for 45 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)? 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 linked PDF for a detailed description:
- NPV MMA Diff.
- Years to >MMA
CL earned no Stars in this section. The NPV MMA Diff. of the $176 is below the $2,500 minimum I look for in a stock that has increased dividends as long as CL has. If CL grows its dividend at 11.4% per year, it will take 14 years to equal the cumulative earnings from a MMA yielding an estimated 20-year average rate of 4.61%. The 14 years is more than the 10 years maximum I like to see. .
Other: CL is a member of the S&P 500, a Dividend Aristocrat and a member of the Broad Dividend Achievers™ Index. Demand for household and personal care products is generally static, and not affected by changes in the economy or geopolitical factors. The industry is mature and quite competitive. CL's restructuring are likely to continue to benefit EPS growth. The CEO transition from Reuben Mark (CEO since 1984) to Ian Cook (former COO, became CEO on July 1, 2007) appears to have gone smoothly.
Conclusion: CL lost one Star in the Fair Value section, earned one Star in the Dividend Analytical Data section and did not earn any Stars in the Dividend Income vs. MMA section for a net total of zero Star. This quantitatively ranks CL as a 0 Star-Avoid stock.
Using my D4L-PreScreen.xls model, I determined the share price would have to drop to $62.10 before CL's NPV MMA Diff. decreases to the $3,000 NPV MMA Diff. that I like to see. At that price CL would yield 2.51%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the $3,000 NPV MMA Differential I'm looking for, the calculated rate is 13.9%. CL has not grown its dividend 13.9% or above since 2005 when its year-over-year dividend growth rate was 15.6%. CL will not be joining my income portfolio anytime soon.
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 Disclaimer for more information.
Full Disclosure: At the time of this writing, I had no position in CL (0.0% of my Income Portfolio) .