Consumer staples stocks are highly regarded by income investors for their strong brands, steady profits and rising dividends.
Indeed, many of the stocks with the longest histories of paying and raising their dividends over many years come from the consumer staples sector.
[ad#Google Adsense 336×280-IA]Colgate-Palmolive (NYSE: CL) has one of the strongest track records of reliable dividends.
It is primarily known for its namesake toothpaste and soap.
But it has a number of popular global brands.
Colgate-Palmolive sells its products in over 200 countries around the world, under brand names like Colgate, Palmolive, Softsoap, Irish Spring, Kolynos, Tom’s of Maine and Ajax, as well as pet care products like Hill’s Science Diet.
Strong Brands Fuel Rising Profits
Colgate-Palmolive has positioned itself to focus on international markets, in particular high-growth emerging market regions such as Latin America and Asia. These two markets collectively represent 43% of total company sales, whereas North America accounts for just 19% of company sales.
This is hurting the company right now, due to the strengthening U.S. dollar. For multinational companies such as Colgate-Palmolive, the rising U.S. dollar against foreign currencies makes international revenue worth less when it is converted back into U.S. dollars.
To that end, worldwide sales fell 6.5% last quarter, year over year. But the results look much worse than they actually were. Excluding the effects of currency and divestments, Colgate-Palmolive grew organic revenue by 5.5% last quarter. This was due to 3% growth in global volumes, as well as 2.5% growth from price increases.
Currency shaved off a whopping 12% from Colgate-Palmolive’s revenue last quarter, but the underlying fundamentals remain sound. The company is simultaneously growing volumes and is able to pass through price increases, which demonstrates its strong brand and pricing power.
Over time, this has enriched investors. According to the company, Colgate-Palmolive stock delivered a 1,137% total return in the 20-year period from Dec. 31, 1994 through June 30, 2015. This handily beat the 563% total return for the S&P 500 index in the same period.
Colgate-Palmolive generates a lot of cash, which is why the company has such a long track record of uninterrupted dividends. Over the first half of 2015, Colgate-Palmolive produced $943 million of free cash flow. It paid $689 million in dividends during this time, which equates to a 73% free cash flow payout ratio. This is a comfortable level which should leave enough room for Colgate-Palmolive’s impressive dividend growth streak to continue for many years.
Bank on Colgate-Palmolive Dividend Growth
Earlier this year, Colgate-Palmolive increased its dividend by 6%, which is a solid raise well above inflation. The new annualized rate of $1.52 per share offers a 2.2% yield, which is slightly above the market average. Over the past five years, Colgate-Palmolive has increased its dividend by 7% per year.
The Colgate-Palmolive dividend is well-known. The company has paid uninterrupted dividends on its common stock since 1895, an incredible streak that justifiably places Colgate-Palmolive in the good graces of income investors.
Not only that, but the company also returns excess cash to shareholders through significant share repurchases. When the company raised its dividend, it also approved a new share repurchase program. It will repurchase up to $5 billion of its common stock, over the next three to four years.
Colgate-Palmolive generates a lot of free cash flow, and returns a great deal of cash to shareholders through dividends and buybacks. This is a testament to the company’s world-class brand and rock-solid business model.
This dividend stock offers a market-beating yield and a proven track record of reliable dividend growth. As a result, income investors should feel very good about owning Colgate-Palmolive.
— Bob Ciura[ad#wyatt-income]
Source: Wyatt Investment Research