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Colgate-Palmolive (CL) Cheers Investors With Dividend Hike

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Colgate-Palmolive Company (CL - Free Report) is cheering investors by enhancing shareholder returns at a time when most companies’ dividends and share repurchases remain suspended due to the hardships posed by the coronavirus outbreak. The global consumer products company boasts of paying uninterrupted dividends since 1895, while regularly increasing dividends every year since 2001. It will now pay a quarterly cash dividend of 45 cents per share, reflecting a 2.3% hike from the prior rate of 44 cents. The increased dividend will be paid out on May 14 to shareholders of record as of Apr 21, 2020.

Effective second-quarter 2021, the latest dividend hike will bring its annualized dividend rate to $1.76 per share. Notably, the company has a five-year annualized dividend growth rate of 3.2%, reflecting dividend increases for five consecutive years. Based on the share price of $75.27 on Mar 11, Colgate currently has a dividend yield of 2.3%. Moreover, the company’s current dividend payout ratio is 57.7%.

Dividend payouts are the biggest enticement for investors and Colgate has always focused on making investments to develop business while using the excess cash to enhance shareholder returns, thanks to its strong cash generation ability. Notably, it is a windows-and-orphan stock, with a long history of regular reliable dividends. In 2020, the company paid out dividends of $1,654 million to shareholders.

The latest hike also reflects Colgate’s solid cash position that is used to return value to shareholders (through higher dividends and regular buybacks) as well as reinvesting in the business. With an annual free cash flow return on investment of 41.7%, ahead of the industry’s 24.4%, the increased dividend is likely to be sustainable. The company recorded a free cash flow of $3,309 million in 2020, up 18.3% from the prior year.

What Else Should You Know?

Colgate has been witnessing continued demand for personal and home care products due to the COVID-19 pandemic, with robust sales growth in the Hill’s and Latin America businesses. Moreover, positive trends in the e-commerce platform bode well as more and more consumers are using online services for their essential needs. Further, it remains focused on its innovation strategy, with some notable innovation efforts being undertaken by Colgate, Colgate Optic White Renewal toothpaste and the Colgate Optic White Overnight Teeth Whitening Pen; the recent buyout of Hello Products LLC and the continued expansion of the Naturals and Therapeutics divisions. However, concerns related to higher SG&A expenses due to increased advertising investment and foreign currency risks cannot be ruled out.

We note that shares of this Zacks Rank #3 (Hold) company have advanced 8.9% in a year’s time compared with the industry's and the Consumer Staples sector’s growth of 11.7% and 21.2%, respectively. Further, the stock is hovering close to its new 52-week high of $75.85.

Given these dynamics, we see no reason why Colgate, with a long-term earnings growth rate of 6%, cannot surpass the 52-week-high mark in the near term.

Stocks to Consider

Helen of Troy Limited (HELE - Free Report) currently has an expected long-term earnings growth rate of 9.4% and a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Diageo plc (DEO - Free Report) has a long-term earnings growth rate of 8.3% and currently, a Zacks Rank #2 (Buy).

Coca-Cola FEMSA (KOF - Free Report) has a long-term earnings growth rate of 9.6% and currently, a Zacks Rank #2.

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