Linked here is a detailed quantitative analysis of Colgate-Palmolive (CL). Below are some highlights from the above linked analysis:Company Description: Colgate-Palmolive Company (Colgate) is a major consumer products company that markets oral, personal, and household care and pet nutrition products in more than 200 countries and territories.Fair Value: In calculating fair value, I consider the NPV MMA Differential Fair Value along with these four calculations of fair value, see page 2 of the linked PDF for a detailed description:1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham NumberCL is trading at a premium to all four valuations above. Since CL’s tangible book value is not meaningful, a Graham number can not be calculated. When also considering the NPV MMA Differential, the stock is trading at a 110.8% premium to its calculated fair value of $47.48. CL did not earn any Stars in this section.Dividend Analytical Data: In this section, there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling 4-yr Div. > 15%CL earned one Star in this section for 1.) above. A Star was earned since the Free Cash Flow payout ratio was less than 60% and there were no negative Free Cash Flows over the last 10 years. The company has paid a cash dividend to shareholders every year since 1895 and has increased its dividend payments for 60 consecutive years.Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA) or Treasury bond? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:1. NPV MMA Diff.
2. Years to > MMAThe negative NPV MMA Diff. means that on a NPV basis the dividend earnings from an investment in CL would be less than a similar amount invested in MMA earning a 20-year average rate of 3.75%. If CL grows its dividend at 2.9% per year, it will never equal an MMA yielding an estimated 20-year average rate of 3.75%.Peers: The company’s peer group includes: Procter & Gamble Co. (PG) with a 2.3% yield, Kimberly-Clark Corporation (KMB) with a 3.3% yield, and Clorox Corporation (CLX) with a 3.3% yield.Conclusion: CL did not earn any Stars in the Fair Value section, earned one Star in the Dividend Analytical Data section, and did not earn any Stars in the Dividend Income vs. MMA section for a total of one Star. This quantitatively ranks CL as a 1-Star Very Weak stock.Using my D4L-PreScreen.xls model, I determined the share price would need to decrease to $47.62 before CL’s NPV MMA Differential increased to the $500 minimum that I look for in a stock with 60 years of consecutive dividend increases. At that price, the stock would yield 4.2%.Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $500 NPV MMA Differential, the calculated rate is 10.3%. This dividend growth rate is higher than the 2.9% used in this analysis, thus providing no margin of safety. CL has a risk rating of 1.75 which classifies it as a medium-risk stock.Demand for household and personal care products is generally stable and not affected by changes in the economy. A significant portion of CL’s sales comes from emerging markets. This presents the company with more growth opportunities, but also more risk. Its continued focus on product innovation, along with globally recognized brands and presence in both developed and emerging markets will boost its long-term profitability.Debt to total capital at 95% (down from the 97% in the review), well above my desired maximum. Free cash flow payout of 49% (down from 67%), slightly above my desired maximum. With a calculated fair value of $47.48, CL is trading at a significant premium. When I combine the above with a current yield that is below my minimum, I will not initiate a position in this stock in the near term.More By This Author:Johnson & Johnson Dividend Stock Analysis – Saturday, Oct. 12
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