Colgate-Palmolive (NYSE:CL) is a familiar name to many investors. After all, you've probably passed many of its products in the grocery aisle, and likely put some of the items in your cart before you've headed to the checkout aisle.
Investing in companies that you understand is always good, and it is one of the key tenets of famed investor Peter Lynch's investing guidelines. However, mere familiarity is not enough to decide that the stock is a worthy investment.
To determine that, it is time to delve deeper into the company's fundamentals.
Strong brand recognition
Under its leading Colgate brand, the company sells toothpastes and toothbrushes. These products garnered an impressive 41% of the market in 2019. It also sells popular soaps, deodorants, dishwashing liquids, and cleaners under powerful brands like Palmolive, Speed Stick, and Ajax. Then, there's its pets nutrition business whose offerings are geared toward dogs and cats.
These are well-recognized brands that have strong reputations. Its entire product lineup has stable demand throughout the economic cycle, too. While you may cut back on vacations or big-ticket items, undoubtedly you aren't going to cut down on your purchases of toothpaste or deodorant even if you lose your job. On top of that, it is not overly reliant on one country, since the company sells its goods in more than 200 countries and garners more than 70% of its sales from outside the U.S.
Colgate's third-quarter results bear out these strengths. The company's adjusted sales rose by 7.5% year over year to $4.2 billion. This helped drive its adjusted earnings per share 11% higher to $0.79.
With these products and steady demand, it's no wonder that Colgate has paid a dividend for 125 straight years. Even better, the board of directors has raised the payment annually for the last 57 years. This makes Colgate a Dividend King: An S&P 500 company that has increased dividends for at least 50 consecutive years.
The company's last hike was a modest penny increase, starting with the May quarterly payout. At the current stock price, Colgate's dividend yield is 2.1%. Still, the decision came amid the pandemic that caused many other companies to cut or even suspend their dividends.
That's not a concern with Colgate. Selling soaps and detergents may not excite investors, but its prodigious cash flow should generate enthusiasm. In the first nine months of the year, its free cash flow was $2.5 billion, which easily covered the $1.2 billion of dividends.
Colgate has a lot of nice attributes -- leading products that aren't subject to the economic cycle, and growing dividends. If dividend income and modest growth appeal to you, this stock fits the bill. For those of you looking for faster growth and capital gains, there are better alternatives. It just comes down to your investing style.