How Safe Is Colgate-Palmolive's Dividend?

Colgate-Palmolive (CL +2.04%) has been a consumer stalwart for decades, reliably supplying customers with the toothpaste, dishwashing soap, and other household products they need. Reliable businesses can make great investments, and Colgate-Palmolive has also shown its dedication to investors by offering them consistent dividends that have grown over time. Yet even Colgate-Palmolive has seen some issues arise that could threaten its future growth over the long run. Below, you'll learn more about whether investors should consider Colgate-Palmolive's dividend to be safe for the years to come.

Dividend stats on Colgate-Palmolive

Data source: Yahoo! Finance. Last increase refers to ex-dividend date.

Dividend yield

Colgate-Palmolive's dividend yield of 2.2% is actually fairly low compared to some of its consumer products peers. From a big-picture standpoint, however, Colgate-Palmolive still yields more than the overall market. The company has also been remarkably consistent in keeping its dividend yield in a tight range over time, with the current level being very close to the middle of the 2% to 2.5% that the stock has enjoyed at various times over the past five years. With a stock price that has grown steadily alongside the dividend payment, Colgate-Palmolive appears to be managing its payouts well.

Payout ratio

Colgate-Palmolive has also done a good job of ensuring that its dividend doesn't get overextended. The current level in the neighborhood of 60% is consistent with the range that Colgate-Palmolive's dividend has been in lately, although it has crept up somewhat from the 45% to 55% range that typically prevailed five to 10 years ago. Part of the issue with Colgate-Palmolive's payout ratio is that the company saw a disruption to earnings last year that temporarily took the metric to uncomfortably high levels. Investors now hope that the worst is over and that the payout ratio will settle back down.

Image source: Colgate-Palmolive.

Dividend growth

Colgate-Palmolive has a long history of boosting its dividends, with annual increases dating back 54 years. The pace of dividend growth has varied from time to time, matching up with the fundamental business conditions that the company has enjoyed. During the mid-2000s, for example, Colgate-Palmolive saw particularly sharp dividend growth following a sluggish period during the recession from 2000 to 2002. Another boost came during the early 2010s, but more recent trends have led to moderating increases, including the most recent 3% rise this year.

CL Dividend data by YCharts. Note: Dip reflects calendar timing issues rather than a substantive change in dividend policy.

Can Colgate-Palmolive keep gaining ground?

Interestingly, the biggest threat to Colgate-Palmolive's dividend could be a potential acquisition. The company has been identified as a takeover target, with some reports suggesting that Kraft Heinz (KHC +0.44%) could look to expand its scope beyond the food sector and diversify into a broader consumer products company. Since then, the rumors haven't led to any action, but some still believe that given its relatively small size compared to industry peers, Colgate-Palmolive would make a logical acquisition candidate.

Colgate-Palmolive does have some challenges in its core business. Like many of its competitors, sales have been weak, and in the company's most recent quarter, net revenue actually declined from year-earlier figures, sending profit down by double-digit percentages. Latin America has been a saving grace for growth, with sales of oral, personal, and home care products there rising nearly 7% even as key markets in North America, Europe, and the Asia-Pacific region fell. CEO Ian Cook pointed to "uncertain in global markets and slowing category growth worldwide" as challenges that will remain difficult, but restructuring efforts have gone well, and the company hopes to expand margins and make the most of whatever sales growth it can muster.

Can you count on Colgate-Palmolive's dividend?

Colgate-Palmolive has seen some struggles lately, but it has taken steps to ensure that its dividend is sustainable. With a long track record of growth, Colgate-Palmolive has already demonstrated its commitment to shareholders, and it's unlikely to do anything to take away from the safety of its dividend going forward.