In the final article in this special report, Ben Reynolds — editor of Sure Passive Income — looks at Colgate-Palmolive Co. (CL), one of the initial stocks recommended in the new advisory service.
Colgate-Palmolive was founded all the way back in 1806. Today, it is a consumer staples giant that sells its products in over 200 countries around the world.
It operates in four core categories: Oral Care, Personal Care, Home Care, and Pet Nutrition. The company’s most recognizable brands include Colgate, Palmolive, Softsoap, Ajax, and Hill’s among others.
The company dominates the toothpaste market, with the #1 global position. Colgate holds a 40% share in the global toothpaste market.
Such an iron-clad grip on its core market has allowed Colgate-Palmolive to reward shareholders with steady dividends for over a century. The company has paid uninterrupted dividends since 1895. It has increased its dividend for 58 consecutive years.
Colgate-Palmolive’s strong brand portfolio is a major competitive advantage, and adds safety to the dividend, particularly in a recession. The company sells products like toothpaste, soap, and pet food, which consumers still need even when the economy enters a downturn.
For example, Colgate-Palmolive actually grew its earnings-per-share by 28% from 2007 to 2010, which included the Great Recession years.
Colgate-Palmolive’s financial results have actually improved to start 2020, as the pandemic has caused consumers to stockpile their pantries with staples products.
In the 2020 second quarter, Colgate-Palmolive reported organic sales growth of 5.5%, while base earnings-per-share increased 3% year-over-year. Colgate-Palmolive’s results were especially strong domestically, with 11% organic sales growth in North America.
Colgate-Palmolive’s dividend is safe, thanks to the company’s consistent earnings. Analysts currently expect the company to generate earnings-per-share of $2.96 for 2020.
With an annual dividend payout of $1.76 per share, Colgate-Palmolive is expected to have a dividend payout ratio of approximately 60%. This is a healthy dividend payout ratio, which gives sufficient coverage of the dividend while leaving room for additional increases each year.
Colgate-Palmolive stock has a 2.2% dividend yield. Although it does not qualify as a high-yield stock, Colgate-Palmolive increases its dividend reliably every year like clockwork. And, the yield still beats the average S&P 500 Index yield, currently around 1.7%.
Final Thoughts
The U.S. economy entered a recession in 2020, ending over a decade of economic expansion. Investors should therefore become more selective in an environment marked by economic uncertainty. Rather than reach for extreme high-yielders, many of which could be in dubious financial condition, investors should focus their portfolios on quality.
The four stocks mentioned above do not have the highest yields around, but they do offer stability and consistent dividend growth, even in a prolonged recession. Johnson & Johnson, Coca-Cola, Lockheed Martin, and Colgate-Palmolive all pay dividends to shareholders, with yields that beat the broader index average.
They are all highly likely to raise their dividends for many years ahead, due to their industry-leading market share and global competitive advantages.
For all these reasons, the four stocks feature in this report — Johnson & Johnson (JNJ), The Coca-Cola Company (KO), Lockheed Martin (LMT) and Colgate-Palmolive — were recommended in the first edition of the Sure Passive Income newsletter.
