Colgate-Palmolive (NYSE: CL) announced its 3rd quarter 2018 results last week. Shares are down, but the Colgate dividend is steady. The company’s dividend history is long, and it might make a good addition to a dividend stock portfolio. Before jumping to the Colgate dividend trends, here’s a quick overview of the company.
Colgate Business Overview
Colgate is a $52 billion business that’s based out of New York. Last year, Colgate generated $15 billion in sales, which works out to $430,000 per worker (35,900 employees).
The company runs within the consumer sector and maintains a solid credit rating (AA-) from the S&P. This allows Colgate to issue cheap debt to grow the business and finance other initiatives.
Colgate recently acquired PCA SKIN, a leader in medical-grade and take-home skin care products. PCA SKIN has professionally dispensed products and treatments available in more than 13,000 practices around the world. The expansive network should help Colgate pull in more revenue to support its dividend payments.
Colgate’s Dividend History Over 10 Years
Colgate paid investors $0.78 per share a decade ago. Over the last 10 years, Colgate’s dividend has climbed to $1.59, a 104% increase. The chart below shows the annual changes.
The compound annual growth is 7.4% over 10 years… but over the last year, the dividend climbed 2.6%. The drop in dividend growth isn’t a good indicator. However, Colgate Palmolive still might be a worthwhile income investment. Let’s review the dividend yield history.
Colgate’s Dividend Yield vs. 10-Year Average
Colgate’s long history of paying dividends might make it a great dividend stock. The reliability also makes the dividend yield an indicator of value. Generally, a higher yield is better for buyers. Sustainability is also important… so we’ll look at that soon.
The Colgate dividend yield comes in at 2.8%, which is above the 10-year average of 2.69%. The chart below shows the dividend yield over the last 10 years.
The higher yield shows that traders have pushed down the company’s market value. Traders might be anticipating higher payouts and growth. But more often than not, the dividend yield will revert to the mean with share price changes.
Improved Colgate Dividend Safety Check
Many investors look at the payout ratio to determine dividend sustainability. Payout ratio is the dividend per share divided by net income per share. A payout ratio of 80% would mean that for every $1 Colgate-Palmolive earns, it pays investors $0.80.
Payout ratio is a good indicator of dividend safety… but accountants skew net income. They adjust for goodwill and other non-cash items. A more worthwhile metric is free cash flow.
Here’s Colgate-Palmolive’s dividend payout ratio based on free cash flow over the last 10 years.
The ratio is fairly steady over the last 10 years. The trend is also up, and the last reported year shows a dividend payout ratio of 56.1%. This gives room for Colgate’s board of directors to raise the dividend.
Closing Thoughts: Colgate’s Dividend History and Safety
Colgate stock is near its lowest price in the last five years. As a result, the yield is above its historical average. The dividend is also safe, with the payout ratio coming in at below 60%. The dividend trends give a green light to Colgate… but other valuation metrics don’t look as enticing.
Are you interested in seeing better value plays in the current market? If so, check out: Best Dividend Stocks: Top Dividend Achievers List
Good investing,
Rob
