Saturday, July 12th, 2008
The Board of Directors of Colgate-Palmolive Company (NYSE: CL) declared quarterly cash dividends of $.40 per common share, payable on August 15, 2008, to shareholders of record on July 24, 2008.
For those of you looking for a dividend that is as close to certain as you can get, look no further as Colgate-Palmolive has paid uninterrupted dividends on its common stock since 1895.
Colgate on the Defense
With the turmoil that has been the stock markets in the past weeks and months, many investors (at least those who haven’t gone to 100% cash) are turning to defensive stocks to assist in preserving capital. With a Beta of just 0.31, Colgate (CL) is one of the least volatile dividend stocks on the market.
In addition to a healthy dividend and price stability (in relation to the market), Colgate also offers some excellent growth numbers for a company of such extreme size. Colgate boasts a Return on Assets (ROA) of 17.03 and a Return on Investment (ROI) of 29.07; both of which trump the industry numbers quite handily.
Colgate Dividend Data
With many dividend stocks struggling with earning this year, the management of the company’s dividend payout ratio is of particular importance. Colgate has a dividend payout ratio of just 43.4% of earnings, which will allow for some flexibility in earnings capacity without sacrificing the dividend rate in the short term. A dividend payout ratio of below 60% is a relatively conservative guideline for investing in dividend growth stocks.
When investing in a good dividend growth stock, one of the criteria that I use is to set a purchase price for a stock when its dividend yield is around 25-30% above the 5-year average dividend yield. Colgate’s 5-year average dividend yield is 1.88% and the current yield is 2.27% - a yield that is 20% higher than average.
Another criteria that I use is that the dividend growth rate must be greater than that of the S&P 500. Otherwise a dividend growth investor would be more prudent buying the entire index to mitigate risk. The dividend growth rate for the S&P 500 is currently at 11.0%, while Colgate features a dividend growth rate of over 14% - a healthy 3% points higher than the index.
Buy What You Know -Colgate
Unless you have been living under a rock for the past century, you will recognize Colgate-Palmolive as a leading global consumer products company. The company is very successful in its focused niche markets of Oral Care, Personal Care, Home Care and Pet Nutrition.
Colgate sells its products in over 200 countries and territories around the world under some of the world’s most recognized brand names as Colgate, Palmolive, Mennen, Softsoap, Irish Spring, Protex, Sorriso, Kolynos, Elmex, Tom’s of Maine, Ajax, Axion, Soupline, and Suavitel, as well as Hill’s Science Diet and Hill’s Prescription Diet.
Stock Summary
As investors looking at Colgate (CL), we have a stock that is quite a bit less volatile than the broader market with a beta of just 0.31, a greater than average dividend yield at 2.27% that is growing at a faster pace than the index. In addition, the company has features an excellent return on investment and wide array of well branded products that people still need to buy regardless of economic conditions.
Full Disclosure: The author does not own shares of Colgate-Palmolive at the time of writing.
Posted in Investment News | 4 Comments »
Wednesday, July 2nd, 2008
I have regularly touted that income in the form of increasing stock dividends, from companies with a track record of increasing their dividends, is a great way to build inflation protected passive income.
Investing For Yourself
A new article from Morningstar Columnist, Josh Peters CFA, indicates the same sentiment. In the article he makes a strong case for those of us who are engaged in the Dividend Investing strategy to invest ourselves and cut out the middleman (Broker, Advisor, or Fund Manager). If we develop a clear and focused strategy to invest in dividend paying common stocks that we are committed to understand, then the choice is clear.
Cut out the middleman!
Are Fund Fees Worth The Cost?
He suggests, as I do, that the role of the mutual fund is to prevent the amateur investor from making large mistakes. However, in return, the manager is compensated through fees and fund expenses that diminish the returns of the retail investor…you and me.
I do advocate professional management for sectors that I do not understand such as certain small caps and international offerings that I either can’t cover due to lack of time or because there is a lack of information available to me.
Diversify What You Don’t Understand
You might want to consider, as I have, the inclusion of an International Dividend ETF in order to add some global allocation to your asset mix.
There is no shame in admitting when you don’t have the expertise, information, or smarts to understand a stock or a market. Heck, people who invest professionally (as in for a living) can’t absorb enough information to master every market, so how can we amateur investors be expected to do so? The answer is…we can’t!
You should check out the remainder of the morningstar article, it does present some great points.
Here’s to money!
Posted in Investment News | 2 Comments »
Wednesday, June 18th, 2008
In a recent article by John Heinzl (Globe and Mail) he asks himself if, as a dividend growth investor, he and all other dividend investors are idiots? Heinzl outlines the feelings that we typically have every so often as dividend investors. That is, missing out on the “multibaggers” that everyone is talking about around the water cooler at work.
Here is a quote that sums up how us dividend investors might feel at the moment:
…Because when everyone else is doing the logical thing and shoveling money into growth stocks that are shooting to the moon, only a big fat idiot would stubbornly sit on a portfolio of boring dividend stocks that are, for the most part, doing jack squat.
It’s interesting that he mentions high flying stocks like Potash Corp. and Research in Motion as being the ones that he missed out on, while he talks about owning our favorite dividend growers - banks, insurers, pipelines and drug makers.
How Far Can You See?
When investing in dividend growth stocks , it isn’t about making a killing this week or this month.
- It is about investing for the long haul and watching your dividend income rise consistently year over year while your “investor” counterparts are searching for the next hot tip.
- It’s about holding onto that dividend paying stock and not worrying about the stock price, as long as that dividend keeps growing.
- It’s about protecting your hard-earned money from inflation and making your money work for you.
- It’s about knowing the company can’t fake a cash dividend.
- It’s about money in your pocket.
Over the long term we know (and Heinzl reiterates) that dividend growing common stock prices also out perform those stocks that pay stable or no dividends.
So What Now?
There is a famous saying from Warren Buffett that goes something like this:
“Be fearful when others are greedy, and greedy when others are fearful”
Of course this is easier said than done, otherwise we’d all be running a multi-billion dollar company like Berkshire Hathaway.
While it may take some serious resolve to start loading up on some of our favorite dividend payers, most notably banks stocks, sticking to a long term plan will make you rich in the long run.
So, to echo the words of Mr. Heinzl I’ll end with this quote:
Am I going to sell my dividend stocks to buy these high fliers now? Hell, no. If anything, I’ll be adding to my existing positions, and reinvesting the extra dividends in even more shares to take advantage of the magic of compounding.
So, don’t worry about the water cooler talk and stick to your plan. Soon enough you’ll be saying goodbye to the water cooler forever when the compounding effects of your rising dividend income begins to exceed your salary!
Here’s to your wealth!
Posted in Investment News | 6 Comments »
Thursday, April 3rd, 2008
Where To Start Your Research
Start out by reviewing the Dividend Aristocrats or Dividend Achievers lists to identify a broad category of stocks that have consistent dividend growth.
Once you have identified a list of stocks using the dividend achievers list, it is time to narrow it down to a few of the best dividend growth stocks.
Sector Selection
A general rule of thumb for dividend growth investors is to select one or two stocks in different sectors, such as insurance, utilities, financials, telecom, etc., with the highest dividend yield and a recent dividend increase.
Many dividend growth investors will require that the dividend increase be within the past year, the more recent the better. Dividend growth investors are of the philosophy that an increase in a company’s dividend means that the company is healthy and its future prospects are solid. Therefore, the amount that the dividend is increased should also be taken into consideration.
Dividend Growth Rate
The amount that a dividend is increased on a year to year basis is called the dividend growth rate. The philosophy of dividend investors is that the higher the dividend growth rate, the higher the prospect for the stock to increase in value.
For instance, Sun Life Financial (SLF) has a dividend growth rate of approximately 20% over the past 5 years. Over that same time, the stock has doubled in value from $20.00 per share to over $40.00 per share. If you had purchased Sun Life Financial 5 years ago at $20.00 per share, with the current dividend rate of $1.07, your yield on the purchase price would be 5.4%.
Not only would one be receiving these healthy dividends this year, but one could reasonably expect to get a 20% raise next year!
This is the basis of dividend growth investing; to produce consistent and inflation hedged income.
Due to the fact that the dividend growth rate can play such a significant factor in the future value and income potential of the stock, it is suggested that the investor find a middle ground when choosing stocks for a dividend growth portfolio.
The middle ground should consist of:
1.) A reasonable current yield, compared to its peers and itself historically.
2.) A recent dividend increase combined with increased earnings
3.) A high dividend growth rate compared to the industry.
Stocks selected from Mergent’s Dividend Achievers that display these factors should provide a great starting point to a dividend growth portfolio.
I’d be happy to hear any comments or questions regarding this strategy and I hope to have more detailed information up here in the near future.
P.S. - I hate excuses, but things are hectic around here as my wife is officially 10 months pregnant! Please accept my apologies for the slow article posting rate.
Posted in Stock Studies | 20 Comments »
