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Why Colgate-Palmolive Is a Retiree's Dream Stock

By Rich Duprey – May 30, 2020 at 11:00AM

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Few companies have the history, stability, and consistency of this consumer products giant.

Colgate-Palmolive (CL 1.22%) has built a business over the centuries that is essential to practically every consumer's everyday life. Toothpaste and dish soap comprise the lion's share of its business, and focusing on personal care products ensures that even in the worst economic conditions, people will still turn to its brands.

The company continues to expand its global footprint, and it actually derives three-quarters of its revenue from emerging markets, which could be considered one of the few risks associated with an investment in its stock, though it also presents a world of opportunity to cash in on rising disposable income levels.

Coupled with an enviable record of sharing its success by returning value to shareholders, it's easy to see why Colgate's stock fits into a dream retirement portfolio.

A woman brushing her teeth

Image source: Getty Images.

Withstanding calamity

Let's get it out of the way at the top: Not even Colgate-Palmolive is immune to the COVID-19 pandemic, which is not surprising, really, considering its global footprint and the fact that the coronavirus is a worldwide crisis. When the company reported first-quarter earnings in May, it pulled its full-year guidance, as many companies did, because of the uncertainty created by the viral outbreak.

Yet it still beat Wall Street expectations as sales were up 5.5%, and profits surged 28% despite much of the world having been hamstrung by the pandemic long before it was declared one. It points to the resilience of Colgate's brands and having the No. 1 or No. 2 spots in most markets around the world.

The company may experience some softness over the next quarter or two as everyone became a prepper when the pandemic hit and stocked up on basics, but it's comforting to know that in times of crisis, Colgate is a brand consumers turn to first.

A focus on the future

There is a conga line of companies jumping on the cannabis bandwagon, and though it smacks of FOMO, there's a reason for the enthusiasm: It's a nascent industry with huge potential.

Colgate-Palmolive is obliquely participating in the trend, having acquired oral care specialist Hello Products, a youth-oriented brand that is launching a line of hemp-derived cannabidiol (CBD) products including mouthwash, toothpaste, and lip balm. They're not going to displace its own Colgate brand, but it gives the consumer products giant an inside track to on-trend products.

Sharing the wealth

Arguably the primary reason retirees (and other investors) turn to Colgate is its dividend. Founded in 1806, it began paying a dividend in 1895, meaning the uninterrupted shareholder income stream has been in existence longer than almost all other companies on the market, let alone investors themselves.

Colgate then began consistently raising the payout every year beginning in 1963, or for nearly 60 years, making it a member of that rarefied group of stocks known as Dividend Kings.

That triple play makes it especially attractive to income-seeking investors. It generates consistently high levels of free cash flow, ensuring the dividend can continue to be paid. Currently, the dividend yields 2.5% annually, and with a payout ratio of around 52%, Colgate should have little difficulty continuing to make the payment.

A good night's sleep

Retirees consider Colgate-Palmolive because it offers a defensive position in turmoil; sells compelling brands; has a massive, global scale; and offers advantages unavailable to many competitors. 

With a record of paying dividends that spans centuries and a history of raising the payout that bridges decades, owning this stock could help all investors could sleep soundly.

Rich Duprey has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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