Church & Dwight, Clorox, and Colgate-Palmolive: 3 Companies for Your Watch List

Looking at the companies that make and sell products such as toothbrushes, laundry detergent, and soap represents a good starting point for investment ideas. Personal product companies Church & Dwight (NYSE: CHD  ) , Clorox (NYSE: CLX  ) , and Colgate-Palmolive (NYSE: CL  ) characterize good examples of such companies. They sell products under well-known brand names, but just because a company sells well-known products doesn't mean it will make a good investment. Investors must check out the underlying financials or fundamentals and assess potential future performance.

More than Arm & Hammer
Church & Dwight is most well-known for its Arm & Hammer brand of products such as baking soda, laundry detergent, and cat litter. However, it also sells products under the Oxiclean, Nair, Trojan, and Orajel brands. Last year, Church & Dwight grew its revenue and net income 9% and 13%, respectively.  Its free cash flow declined 4%,  stemming from the shift of an estimated federal tax payment into the first quarter of 2013 due to Hurricane Sandy.  The international arena served as the biggest area of growth in 2013 with sales growing nearly 4% versus domestic growth of 2% when factoring out foreign currency fluctuations and acquisitions.  

Church & Dwight keeps a solid balance sheet with its $497 million in cash translating into 22% of its stockholder's equity. Its long-term debt to equity ratio equates to only 28% of stockholder's equity,  meaning that its profitability will not get choked out by interest expense.  Last year, Church & Dwight paid out 36% of its free cash flow in dividends. Church & Dwight just recently announced an 11% increase in its annual dividend rate paid to investors.  In 2014, Church & Dwight will pay $1.24 per share per year, equating to a 1.9% dividend yield.

Bleach and more
You probably know Clorox as a brand of bleach used in the laundering of clothes. The namesake Clorox Company also sells other well-known, and perhaps not so well-known, brands such as Glad trash bags, Hidden Valley salad dressing, Kingsford charcoal, and Burt's Bees personal care products . Clorox only grew its year to date revenue 1%, while net income declined 2%. Company free cash flow declined 56% year to date.  Clorox's international segment fared the best with sales growing 9%, when factoring out foreign currency translations,  followed by its cleaning segment which saw a sales increase of 2%  due to marketing and gains in the professional segment.

Volume declines in Clorox's lifestyle and household segments served as a drag on overall revenue growth. Increased competitive activity served as an underlying culprit.  Commodity inflation helped drive net income lower. Clorox maintains a debt laden balance sheet resulting in a low stockholder's equity balance. Its $2.1 billion in long-term debt represents nearly 1,400% in stockholder's equity.  Operating income does exceed interest expense by nine times. The rule of thumb for safety resides at five time interest or more.  Last year, Clorox paid out 47% of its free cash flow in dividends . Currently, Clorox pays its shareholders $2.84 per share per year and yields 3.3%.

Keeping it clean
Colgate-Palmolive sells personal care products such as Colgate toothpaste, Palmolive dish detergent, Speed stick deodorant, and animal nutrition products under the Hill's Pet Nutrition segment. Last year Colgate-Palmolive's revenue increased 2%, while net income declined 9%.  Increased capital expenditures drove free cash flow down 6%.  Foreign currency fluctuations and non-recurring items put a dent in Colgate-Palmolive's reported top and bottom line growth.  Colgate-Palmolive's latest balance sheet information indicates cash of stockholder's equity.  Last year, Colgate-Palmolive paid out 54% of its free cash flow in dividends.  Currently, the company pays its shareholders $1.36 per share per year yielding 2.2%.

Foolish takeaway
Church & Dwight, Clorox, and Colgate-Palmolive face lower growth prospects domestically  and will need to focus on overseas expansion. Product differentiation will also drive growth. Moreover, increased efficiency will drive margin growth especially for the larger companies. Investors should keep an eye on Clorox's debt-laden balance sheet to see if they will ever deleverage, otherwise the company's prospects as business, dividend payer, and as an investment remain inhibited. Businessweek anticipates that Church & Dwight, Clorox, and Colgate-Palmolive will grow revenue 3% , 2% , and 3%,  respectively. Feel free to add these companies to your Motley Fool Watch List to keep track of relevant news feeds to aid to your research.

Are any of these stocks the Fool's top pick for 2014?
There's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.


Read/Post Comments (0) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2835302, ~/Articles/ArticleHandler.aspx, 11/27/2014 12:47:58 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 2 hours ago Sponsored by:
DOW 17,827.75 12.81 0.07%
S&P 500 2,072.83 5.80 0.28%
NASD 4,787.32 29.07 0.61%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

11/26/2014 4:08 PM
CHD $74.92 Up +0.27 +0.36%
Church & Dwight Co… CAPS Rating: ****
CL $68.69 Up +0.36 +0.53%
Colgate-Palmolive CAPS Rating: *****
CLX $99.90 Up +0.12 +0.12%
The Clorox Company CAPS Rating: ****

Advertisement