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

When looking for investment ideas, consider looking toward personal goods companies that make toothpaste and deodorant.

Feb 12, 2014 at 11:45AM

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 performace.

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.

William Bias has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers