In the past ten years Colgate-Palmolive (NYSE:CL) has blown past the S&P 500 as well as competitors such as Clorox (NYSE:CLX) and Procter & Gamble (NYSE:PG). As a result shareholders who have hung onto this company have done very well. Here are three reasons why shareholders should hold on for the next ten years as well.
Diverse range of necessities
We've all learned by now that some diversity is a good thing. Also, we all know that consumers buy and keep buying necessities. This is Colgate-Palmolive's first great attribute.
Colgate-Palmolive's products are nearly all necessities with products such as toothpaste and oral care products, soaps and deodorants, household cleaning supplies, and pet food. This is a wide range of products that we all use repeatedly, and they are all under one roof.
Colgate-Palmolive has done a good job staying within the company's core competencies. Many companies stretch brands further and further into new segments, which can increase revenues but also costs as synergies are not as easily obtainable. Luckily Colgate-Palmolive has made this a priority, as said at the very beginning of their latest annual report: "Colgate's sharp focus on its core business categories and proven global strategies is key to achieving our business goals."
Colgate-Palmolive has outpaced its two of its top competitors, Clorox and Procter & Gamble, over the last ten years in revenue growth and earnings-per-share growth.
Revenues for Colgate-Palmolive, Clorox, and Procter & Gamble have risen 5.1%, 2.7%, and 5% on average per year, respectively, over the last ten years. Earnings per share growth was in Colgate-Palmolive's favor as well, rising by an average of 7.4% per year over the last ten years. Clorox and Procter & Gamble saw 5.3% and 5.2% growth, respectively.
Colgate-Palmolive is also the only company out of the group that has seen its gross and operating margins expand from ten years ago. This illustrates my previous point about the company focusing on their core competencies and being able to recognize synergies.
Giving wealth back to shareholders
Last but not least, Colgate-Palmolive is dedicated to returning wealth to shareholders. Beyond the current yield on the company's dividend of 2.1%, there is plenty more to love.
Colgate-Palmolive is part of the S&P 500 Dividend Aristocrat portfolio. This means the company has raised its annual dividend to investors for each of at least the last 25 years. This gives me faith in Colgate-Palmolive continuing to give as much back to shareholders as possible. But what's better than faith are the numbers; the company has generated cash from operations of $2.9 billion, $3.2 billion, and $3.2 billion in 2011, 2012, and 2013, respectively. Dividends paid only took a portion of this cash as total payments were $1.2 billion, $1.3 billion, and $1.4 billion over those same three years. Investors can be confident in a mature and well-run company to maintain cash flow as well as utilize it properly.
Aside from the dividend, Colgate-Palmolive also actively buys back shares on the open market. Though as a shareholder you don't receive cash in your pocket due to this action, as a company buys their own shares back your stake in the company rises giving you a larger portion of ownership of future earnings and dividends.
Over the last three fiscal years Colgate-Palmolive has spent nearly $5.3 billion repurchasing over 103 million of their common shares, adjusted for a two for one split in 2013.
Fool's take on Colgate-Palmolive
If you did not own this company in the past, you missed out. However it is never too late to buy an excellent business. Currently the company is selling around 29 times earnings, which compared to the market's 18 is fairly rich.
Of course you would always like to buy into a company at a low price relative to earnings potential, but because we don't know when that will occur next, it may serve a long term investor well to own this company and reinvest dividends on a regular basis.
Jacob Meredith has no position in any stocks mentioned. The Motley Fool recommends Procter & Gamble. 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.