Last year, I served up a trick for Halloween in the form of Atari. I'm happy to report that, during this season of souls, I will be able to offer you a more delectable investing idea, a company that should be a long-term treat indeed.
Fools, I give you Colgate-Palmolive (NYSE:CL). Yes, the consumer-products company that all of you are familiar with. Even if you're a devoted user of competitor Procter &Gamble's (NYSE:PG) Crest toothpaste, you've no doubt heard of Colgate and its own line of teeth-related items. Or maybe you've used its Palmolive dish detergent. Own a dog? Ever use Science Diet? Then you've helped enrich the coffers of Colgate-Palmolive, my friend.
This company owns a renowned portfolio of products that are able to command premium prices in their marketplaces -- that's what a great brand lineup can do, generate premiums which, in turn, generate cash. Otherwise, the supermarket aisle would be full of nothing but private-label items.
A look at the latest 10-K shows that the company has been very stable in terms of operational cash flow. Let's see a table of the data (dollars in billions):
|
Year ended Dec, 31, 2005 |
Year Ended Dec. 31, 2004 |
Year Ended Dec. 31, 2003 | |
|---|---|---|---|
|
Net income |
$1.35 |
$1.33 |
$1.42 |
|
Net cash from operating activities |
$1.78 |
$1.75 |
$1.77 |
|
Capital Expenditures and Acquisitions |
$0.43 |
$1.15 |
$0.30 |
|
Free Cash Flow |
$1.35 |
$0.60 |
$1.47 |
In each of the past three years, Colgate made roughly $1.8 billion from operational cash flow. Granted, that shows zero growth. But even with the inclusion of acquisition activities, the company still had a generous amount of free cash left over. In fact, total free cash over the past three fiscal years is approximately $3.42 billion. Know how much the company paid out in total dividends over those same three years? About $1.65 billion. So the company shared almost half of the spoils with stakeholders and used the remaining cash to invest in the company. That's not a bad deal.
Now let's examine the dividend history. According to information from Colgate's investor site, the quarterly payment was equal to $0.1175 per share back in 1996. Ten years later, the quarterly dividend stands at $0.32 per share. As you can see, that's almost a tripling of the payout. If Colgate continues focusing on dividend growth -- and I think the company will -- then an investor who holds the stock for decades is looking at a future effective yield that will make anyone smile.
What will fuel continued dividend growth, you ask? Well, I have to go back to the incredible brand power of the company. That power can be observed through a few more interesting statistics from the investor site. Over the past 22 years, the company's stock has achieved a cumulative return of 3,991%. A peer group composed of such related companies as P&G, Avon (NYSE:AVP), Clorox (NYSE:CLX), Kimberly Clark (NYSE:KMB), and Unilever (NYSE:UN) captured a 2,710% return. And the broad market at large, represented by the S&P 500, yielded a 1,353% return. The past is never proof of what the future holds, but it nevertheless can offer some semblance of validation to an investing idea once other variables have been examined.
In summation, Colgate-Palmolive is a company with a long history and a powerful portfolio of brands used by consumers every single day. Its cash flow should remain strong in the years ahead, and the stock's dividend will most likely remain an attractive component of the overall return. Investing ghouls around the country should take a look at this treat of a company. Happy Halloween!
Treat yourself to some more Takes on consumer product companies:
- Brushing Up on Colgate-Palmolive
- Kellogg's Mass Organics
- Looking for Leverage With Unilever
- Sweet and Sour at Sara Lee
Colgate-Palmolive is a Motley Fool Inside Value recommendation. Unilever is a Motley Fool Income Investor selection. You can try out any of our newsletters with a free 30-day trial.
Fool contributor Steven Mallas owns none of the companies mentioned. He thinks the term "stakeholder" is quite fitting at this time of year. The Fool has a disclosure policy.
The Motley Ghoul's Tricks or Treats represents the opinions of each Fool only and should in no way be taken as the opinion of either The Motley Fool, Inc., or any company in question, or as representative of anyone or anything other than that specific Fool's thoughts. So do your homework, and review The Motley Fool's disclosure policy .
