Friday, May 2, 2014

Colgate-Palmolive Company: High Quality But Should You Buy?

As a dividend growth investor, consumer staples companies are great because people need to brush their teeth, clean their house and wash their body whether the economy is in boom or bust mode.  It's the consistency in their operations and steady, although sometimes slow, growth that allows them to continue to grow year in and year out and the reason why you can find several consumer staples companies on the list of dividend champions.  Earlier this week I updated my valuation on The Procter & Gamble Company (PG) (Full Analysis Here) but today I wanted to see how Colgate-Palmolive Company (CL) stacks up.  Colgate-Palmolive closed trading on Monday, April 28th at $67.86 giving a current yield of 2.12%.

Discounted Earnings:

Analysts followed by Yahoo!Finance expect Colgate-Palmolive Company to grow earnings 8.90% per year over the next five years and I've assumed they can grow at 7.12% (80% of 8.90%) for the next three years and at 3.50% in perpetuity.  Running these numbers through a discounted earnings analysis with a 10% discount rate and summing over 30 years yields a fair value price of $62.01.  This means the shares are trading at a 9.4% premium to the discounted earnings analysis.

Click here to read the rest of the analysis on Seeking Alpha.

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5 comments:

  1. I really love consumer staples in general and have about 25% of my entire portfolio in that sector. However, with regard to CL I do believe that the stock price has moved way ahead relative to it's earnings growth. I am a long time holder of CL and love it as a dividend income producer but would not get any new shares at these levels. I am not one who tries to time markets and stock purchases but know that there other opportunities out there.

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  2. Great point about consumer staples JC. No matter what happens people will always need those home staples to function day in and day out. I agree with your analysis and believe CL is over priced, but I look forward to picking up some shares during this next collapse.

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  3. We need to add consumer staples to our dividend portfolio and I like their future growth potential but agree that CL is a bit overpriced at current level. I like CL under $60.

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  4. Why would CL run such a higher debt to equity than JNJ and PG?

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  5. I enjoyed the detailed Seeking Alpha write up. I do own Colgate....I picked it up quite some time back....but agree that it has a very rich valuation currently.

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