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Church & Dwight Vs. Procter & Gamble: Bigger Isn't Always Better

Joseph Harry profile picture
Joseph Harry


  • CHD is much smaller than PG, but it's also growing.
  • Outperformance of CHD shares could continue.
  • Return on equity favors the smaller player.

Church & Dwight (NYSE:CHD) is arguably most famous for its Arm & Hammer baking soda brand, but it actually owns 11 "power brands" that include: Trojan, Nair, First Response, OxiClean, Orajel, and a few others. These brands might not be as iconic as the brands found in Procter & Gamble's (NYSE:PG) portfolio, such as Tide, Head & Shoulders, and Gillette - but this doesn't necessarily make Church & Dwight inferior in my opinion.

The size discrepancy can be better visualized in the below graphic presented in Church & Dwight's earnings call slides for the fourth quarter:

This appears to be a "David versus Goliath" type situation when comparing the two, but I'd like to present the case for why I think Church & Dwight might be the better quality company.

Outperformance in the past could very well continue

Church & Dwight has averaged returns on par with the S&P 500 over the past five years, significantly outperforming its peers:

Source: CHD 2017 10-K

This stacks up favorably against Procter & Gamble's returns over its past five fiscal years.

Source: PG 2017 10-K

P&G lags by a decent-sized margin, and unlike Church & Dwight, has had some struggles growing the top-line. To be fair, P&G has been busy transitioning its business, by shedding underperforming brands, which could explain some of its share-price related struggles. Church & Dwight is the opposite of its larger peer, as it continues to acquire companies and integrate them into its business for growth.

Return on equity analysis

Moving away from the top-line and focusing on earnings, I'd next like to look at return on equity.

Procter & Gamble recorded a sizable one-time gain after selling its beauty business, so I decided to use earnings from continuing operations in the below DuPont analysis for fiscal 2017. Church & Dwight booked tax-reform related gains

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Church & Dwight will be discussed in more detail using my Inverse Pyramid Process with members of my private investing community, Harry's High-Quality Club.

This article was written by

Joseph Harry profile picture
I write to transfer all the investment ideas and concepts cluttered in my head onto (digital) paper. This helps me evaluate them with more clarity, while also subjecting them to public scrutiny. I'm also currently a CFA candidate. I passed the level 1 exam in June 2015.

Analyst’s Disclosure: I am/we are long CHD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Articles I write for Seeking Alpha represent my own personal opinion and should not be taken as professional investment advice. I am not a registered financial adviser. Due diligence and/or consultation with your investment adviser should be undertaken before making any financial decisions, as these decisions are an individual's personal responsibility.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (22)

Glen Easton profile picture
An acquisition of CHD by PG would be very interesting.
One additional observation; CHD is much likelier to be acquired (at a premium) due to its smaller size. Not many companies could acquire PG.
Interesting article and Church and Dwight is not a " Johnny Come Lately " company. Having a second or third tier Consumer Products Company included in your portfolio is not a bad thing. Sometimes more growth and perhaps a " buyout " candidate in the world of M & A's.
user anita profile picture
I switched to A&H laundry detergent, use the toothpaste, use A&H baking soda in all sorts of unconventional ways. I bought CHD last year after considering my buying habits and taking a look at both stocks. Pleased when we had the recent (and brief) meltdown that CHD held up well.
I like to invest in products I believe in. Arm & Hammer laundry detergent gets my work clothing as clean as Tide at a third the cost, especially in my front loading machine. However in a downturn like I see coming before a 20's run, P&G will recover faster. In '09 I went with P&G, JnJ and CAT. The gains allowed me to gamble on some beaten down stocks that really juiced gains
As a PG shareholder -- fortunately, only a couple of hundred shares -- it pains me to agree with this assessment. PG's performance over the past couple of years, particularly over the past 12 months (negative10% inc. divs) has been dreadful. This company needs a good kick up the arse. CHD, on the other hand, has performed surprisingly well.
True rocketman - -

Maybe Nelson P will have fresh and new ideas to help boost the stock.
stan11 profile picture
"PG's performance over the past couple of years, particularly over the past 12 months (negative10% inc. divs) has been dreadful. "

True, but if you look over a little longer term, the total annual rate of return, including dividends is...
3 years: 5.0%
5 years: 6.7%
10 years: 8.7%
20 years: 7.5%

PG is overvalued now and CHD is extremely overvalued on an earnings and cash flow basis. Both are a hold, IMO.
Micrite1 profile picture
CHD offers half the dividend yield of PG. Since I live on my dividends as others here onb SA do I think I will stay long PG.
CHD - - - barely enough in the dividend dept. to get excited about.
Honestly there is good reasons to have both in your portfolio. Split your investment between them and take a wait/see approach. Both provide a dividend. CHD looks be more poised for growth. As for T-Bonds, there appears to be resistance for farther increases in yield rates. It’s unlikely inflation will increase as long as wages are stagnant, and might be falling slightly
Nice article! Depending on an investor's priorities, both can be good options.
Joseph Harry profile picture
Thanks ten_percent! I agree, PG is probably better for current income, CHD for overall growth and dividend growth.
WAIT WHAT small companies will grow faster than large companies. On that note i will add to my pg holdings no room for the jv team in my portfolio
Joseph Harry profile picture
CHD also generates higher returns on equity and dividend growth.
The JV team has grown faster and out performed them from a product standpoint. P&G bought out a chemical free deodorant this year while CHD made it in house. On almost any type of fundamental analysis CHD beats P&G for the past 10 years. While the article did not go through those numbers nothing stops you as a reader from doing it yourself before you type an ignornt comment.
Sry, AL free deo: http://cnb.cx/2u1rQUY

Let's spend $5 a stick for that nonsense while CHD makes it for $3. Great use of the shareholder money there by the "Varsity" team.
The law of big numbers is still alive and well.
ForeverGreen515 profile picture
PG is the safer bet. You just never know when Church & Dwight fails to give you the protection that you counted on.
Joseph Harry profile picture
Thanks for reading ForeverGreen515,

By protection do you mean in current yield?

CHD held up way better than PG during the Great Recession. From the beginning of Dec of 2007 to the end of June of 2009, PG lost over 30% of its value and CHD only lost 3.23% ( although both out performed the S&P 500's returns over that time, at -37.9%).

From Dec 1, 2007 up until today, PG is up only 7.55%, while CHD is up 256.5% (versus the SP 500 return of 81.70%). Dividends only provide a certain level of safety, and if rates ever normalize PG's yield won't be as attractive going forward, either.

This is using a time span of Dec, 1, 2007 through June 30, 2009 based on this timeline:


I can run different dates for comparison purposes if you'd like.

Paper_stax profile picture
I'd assume that P&G is the default company due to its dividend growth record as well as its financial health. P&G may be sluggish, buts its all viewed as a safer bet for those who just want to park some cash and collect dividends.
Joseph Harry profile picture
Thanks for reading Paper_stax.

I agree that PG probably makes a better "bond substitute" type company for collecting dividends and it has a higher yield, but it might not look as attractive if yields keep rising. The 10 year is almost at 3%.

Yield on cost should also be factoring in, too, and CHD's dividend growth is likely to be much higher than P&G's going forward.
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