Does Colgate Stock Deserve Its Premium Price?

Millions of households rely on products from Colgate-Palmolive (NYSE: CL  ) , as the consumer giant offers a wide range of household items like toothpaste, cleaners, soap, and shampoo. But for investors, the appeal of Colgate stock has been even stronger lately, leading some value-conscious shareholders to wonder if the way that investors have bid up the company's share price is healthy for its long-term prospects. Let's take a look at Colgate in an effort to understand why shareholders value the company so highly.

The appeal of Colgate-Palmolive
Lately, several attractive traits have made Colgate stock appealing to investors. With the stock market having moved nearly straight up over the past four years since its 2009 lows, investors have gotten increasingly nervous about the prospects for a potential downturn. Historically, companies in defensively oriented industries have stood up better to economic and market downturns, and consumer goods companies across the board have become extremely popular mainstays in conservative portfolios as a result.

Another thing Colgate has going for it is a long history of dividends. The company has rewarded shareholders with dividend payments since 1894, and every single year for the past half-century, Colgate has boosted its dividend to shareholders, making it one of the premier Dividend Aristocrats in the market.

Yet in both of these arenas, Colgate doesn't stand head and shoulders above its peers. Procter & Gamble (NYSE: PG  ) has an even longer dividend streak and pays a higher yield than Colgate stock does. Clorox (NYSE: CLX  ) and Kimberly-Clark (NYSE: KMB  ) are also Dividend Aristocrats, and although their streaks are shorter, their yields are a full percentage point or more higher than Colgate's.

Meanwhile, Colgate commands an earnings multiple of more than 24. That makes Colgate stock look expensive compared to Clorox's multiple of 20, P&G's 17, and Kimberly-Clark's 21.

Can Colgate's growth justify its share price?
When companies grow faster than their peers, investors get more comfortable with giving those companies higher valuations. So let's take a quick look at Colgate's revenue growth to see if that explains the disparity.

CL Revenue TTM Chart

Consumer Stocks Revenue TTM data by YCharts.

If anything justifies Colgate's popularity, it's revenue growth. In particular, Colgate has targeted Latin America, an area that has helped the company produce extremely high returns on invested capital. By contrast, P&G has struggled with its international growth, having led the company to make a leadership change at the top by calling on former CEO A.G. Lafley to try to jump-start P&G's innovation engines.

Still, Colgate faces plenty of competition. Clorox has made advances not just in bottle technology but by tapping the power of mobile devices to deliver helpful stain-removal tips to encourage brand loyalty. As P&G recovers and Kimberly-Clark restructures to try to make its businesses more efficient, you can count on Colgate to have to continue pushing harder to keep its growth lead.

Can you clean up with Colgate?
Colgate-Palmolive's products have helped households tackle some tough jobs for decades. But even at fairly lofty prices, Colgate stock looks like it's poised to get the job done for investors as well.

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