Church & Dwight Co., Inc. (CHD) develops, manufactures, and markets household, personal care, and specialty products. The company operates in three segments: Consumer Domestic, Consumer International and the Specialty Products Division.

The company is a dividend top performer that has increased its payouts for 24 consecutive years since 1996.

As early as February, the Board of Directors approved an increase in the quarterly dividend by 5.21% to 25.25 cents / share. Over the past decade, the company has managed to increase dividends at an annualized rate of 20%. The five-year dividend growth rate is 7.50% annualized.

Over the past decade, this dividend growth stock has provided shareholders with an annualized total return of 17.63%.

Between 2010 and 2020, Church & Dwight managed to increase earnings from 94 cents / share to $ 3.12 / share.

Church & Dwight is set to earn $ 3.04 / share in 2021 and $ 3.27 / share in 2022.

The company has several important brands, but has grown mainly through acquisitions. Aside from Arm & Hammer, most of its biggest brands have been acquired over the past 20 years. It’s a smaller player which increases the chances that some of the big players will take it over.

The demand for its products is relatively stable and relatively independent of the economic cycle. Future growth will be a function of new product development, cost maintenance, efficiency improvement, international expansion and strategic acquisitions. An increased focus on marketing should help retain and attract more customers to buy its products on a repeatable basis.

Church & Dwight’s goal is to increase sales 3% per year, increase gross margin by a quarter of a percent and reduce overhead costs by a quarter of a percent. This results in organic earnings growth of 8% / year.

Church & Dwight has a balanced portfolio of household and personal care products. Households account for almost 47% of sales, personal care accounts for 45% of sales, while the rest comes from specialty products.

The company can increase sales and earnings through strategic acquisitions, the expansion of international sales and the development of new products. Acquisitions can increase earnings per share by achieving cost efficiencies and an increase in scalability. On the other hand, acquisitions can be difficult and costly to integrate, especially if corporate cultures are not well aligned.

Church & Dwight has managed to increase sales through acquisitions over the past decade. More than 80% of sales come from 11 brands. These are dominant brands in their product category. Most of these brands have been acquired since 2001.

International sales are an opportunity for Church & Dwight as the company generates less than 16% of sales abroad. The risk in international sales lies in increased advertising activities by larger and more established competitors, which can lead to increased sales without a significant increase. There is high organic growth internationally in the region of 6% / year. The number of middle-class consumers in Asia, for example, is expected to triple between 2009 and 2020 and then double to over 3 billion people by 2030.

Another risk is that almost a quarter of its sales come from Wal-Mart. Dependent on a single company for a quarter of sales is a risk as you are likely to be pressured to maintain that sales channel. Church & Dwight is also at risk from generic drugs, which Wal-Mart could push more than the branded products.

Church & Dwight is also working to increase its online sales. With large numbers of consumers spending more and more time online, this is a great opportunity. On the flip side, it’s difficult to sell directly online without going through an online retailer who can offer the same pressure as a traditional retailer like Wal-Mart.

Share buybacks reduced the diluted shares outstanding from 289 million in 2010 to 252 million in 2020. A history of consistent share buybacks is helpful as it shows that the company is ready to serve long-term shareholders with an increased proportional share of earnings and business over time. However, management has not bought back any shares in the past three years. In a way, I support this decision as the stock wasn’t cheap.

The payout ratio rose from 16% in 2010 to 43.50% in 2015 before slowly leveling off at 30.77% in 2020 as earnings growth. However, over the past five years dividend growth has slowed and is now slower than earnings growth. Longer-term expectations for earnings and dividend growth are roughly kept in check, although the company has some leeway to grow dividends faster than earnings.

Right now, with 25.80x forward earnings and a 1.30% return, the company isn’t cheap. I like the earnings growth pattern and believe the company can keep growing its earnings over time.

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