A detailed quantitative analysis of Colgate-Palmolive (CL) is linked here. Below are some highlights from the analysis linked above:
Company description: Colgate-Palmolive Company (Colgate) is a major consumer goods company selling oral, personal and household care and pet food products in more than 200 countries and territories.
Fair value: When calculating the fair value, I take into account the NPV MMA Differential Fair Value together with these four calculations of the fair value, a detailed description can be found on page 2 of the linked PDF:
1. Avg. High yield price
2. 20-year DCF award
3. Avg. P / E price
4. Graham number
CL trades at a premium to all four of the above ratings. Since the material book value of CL is not meaningful, a Graham number cannot be calculated. When the NPV-MMA differential is also factored in, the stock trades at a premium of 76.3% to its calculated fair value of $ 47.43. CL didn’t deserve any stars in this section.
Analytical data on dividends: There are three possible stars and three key metrics in this section, a detailed description can be found on page 2 of the linked PDF:
1. Free cash flow payout
2. Debt to total capital
3. Key metrics
4. Dividend Growth Rate
5th years Div. growth
6. Rolling 4-year div. > 15%
CL has earned a star for 1.) above in this section. A star was earned because the free cash flow payout ratio was less than 60% and there were no negative free cash flows in the last 10 years. The company has paid a cash dividend to shareholders every year since 1895 and has increased its dividend payments for 57 consecutive years.
Dividend Income vs. MMA: Why take the equity risk and invest in a dividend stock when you could get a better return with a much lower risk money market account (MMA) or a government bond? This section compares the earning power of this stock to a High yield MMA. In this section two points are considered, a detailed description can be found on page 2 of the linked PDF:
1. NPV MMA Diff.
2. Years to> MMA
The negative NPV MMA Diff. means that dividend income from investing in CL on an NPV basis would be less than a similar amount invested in MMA, with a 20 year average rate of 2.74%. If CL increases its dividend by 2.3% per year, it will never match an MMA with an estimated 20-year average rate of 2.74%.
Peers: The company’s peer group includes: Procter & Gamble Co. (PG) with a yield of 2.6%, Kimberly-Clark Corporation (KMB) with 3.5% return and Clorox Corporation (CLX) with a yield of 2.7%.
Conclusion: CL received no stars in the “Fair Value” area, one star in the “Dividend Analysis Data” area and no stars in the “Dividend Income vs. MMA” area, for a total of one star. This ranks CL quantitatively as a 1 star very weak Warehouse.
Using my D4L-PreScreen.xls Model, I found that the stock price would have to drop to $ 49.06 before CL’s NPV-MMA differential rose to the minimum of $ 500 that I’m looking for on a stock with 57 years of consecutive dividend increases. At that price, the stock would return 3.6%.
Resetting the D4L-PreScreen.xls The model and solution for the dividend growth rate required to achieve the target NPV MMA differential of $ 500, the calculated rate is 7.6%. This dividend growth rate is higher than the 2.3% used in this analysis and therefore does not offer a margin of safety. CL has one Risk rating of 1.75, which rates it as a medium risk stock.
The demand for household and personal care products is generally stable and is not influenced by economic changes. The debt to total capital is 92% below the 94% in my previous rating and is well above my desired maximum. The 49% free cash flow payout is down from 54%, which is below my desired maximum. With a calculated fair value of $ 47.43, CL trades at a significant premium. If I combine the above with a current return that is below my minimum, I will not be taking any position in this stock in the short term.
Disclaimer: The material presented here is for informational purposes only. The above quantitative stock analysis, including the star rating, is mechanically calculated and based on historical information. The analysis assumes that the share will develop in the future as it has in the past. This is generally never true. Before buying or selling stocks you you should do your own research and come to your own conclusion. Please see my disclaimer for more information.
Full disclosure: At the time of this writing, I did not hold a position in CL (0.0% of my dividend growth portfolio). I held positions at PG and KMB.
On the subject of matching items:
– Abbvie Inc. (ABBV) dividend stock analysis
– Hasbro, Inc. (HAS) dividend stock analysis
– Amgen, Inc. (AMGN) dividend stock analysis