Colgate-Palmolive

A boring investment with a bright future?

As an investor, you should always ask yourself the following: do I want to feel the excitement and thrill of the stock market, or do I look for boring companies that let me sleep soundly at night? I definitely belong to the boring crowd - I want stable, as crisis-proof as possible, and profitable dividend payers in my portfolio.

With these requirements, of course, there's no getting around toothpaste maker Colgate-Palmolive. If you look at the most popular brands that consumers buy again and again, Colgate takes second place behind Coca-Cola. But Colgate doesn't just sell oral care products, it also sells household cleaning products, shampoos, shower gels, soaps and even pet food. But what about future growth? Can Colgate-Palmolive continue its long-term upward trend?

The origins and business model of the Colgate-Palmolive Company

William Colgate was born in England in 1783, where he grew up on a small farm. His father Robert, contrary to the British nation, was a sympathizer of American independence. Because of this conviction, he had to leave the country together with his family. They emigrated to Baltimore, Maryland. There, too, Robert Colgate ran a farm. His son William, however, was drawn to New York City, where he first worked as a candle maker. Convinced of his skills, Colgate went into business for himself in 1806. He opened his shop on Dutch Street in the middle of Manhattan. There, besides candles, he also sold soap and laundry starch. The William Colgate & Company was born.

When William died in 1857, his son Samuel Colgate took over the business and renamed it Colgate & Company. He immediately put the company's profits into the development and research of new products. In 1872 he launched a perfumed soap, and just one year later he presented his first aromatic toothpaste (back then still in jars) to the public. It wasn't until 1896 that the toothpaste Colgate Ribbon Dental Cream was sold in tubes. It quickly became a bestseller, and Colgate was able to keep growing steadily.

So where does the name Palmolive come from? For that we have to go back to 1864, when the B.J. Johnson Soap Company from Wisconsin made soap from palm oil and olive oil. This soap became so popular that the company renamed itself after it, becoming the Palmolive Company. At the beginning of the 20th century, this very soap was the best-selling in the world. In 1926 it merged with another soap maker and thus became the Palmolive-Peet Company, and just 2 years later it bought the Colgate Company. Because the company name got too long, Peet was dropped in 1953 - since then it has been called the Colgate-Palmolive Company. Several more acquisitions followed, including the pet food maker Hill’s Pet Nutrition since 1976 and, since 2004, the Swiss GABA Group, which sells Elmex and Meridol, among others.

Today the consumer goods maker is mainly active in 4 different segments. Oral Care, where Colgate is by the way the global market leader in toothpaste, still brings in the most money at 47 percent. The Personal Care segment, with soaps, shampoos and deodorants, accounts for 20 percent of revenue. The cleaning segment Home Care, with Ajax and the detergents from Fabuloso, contributes 18 percent, and Pet Nutrition with Hill's products 15 percent. Colgate-Palmolive is therefore relatively broadly positioned and can easily absorb weak phases in individual segments.

What's next for Colgate-Palmolive?

If you look at the share price, you have to admit that Colgate-Palmolive has been moving more or less sideways since spring 2015. That's surely partly because the products offer little innovation and the business model is rather boring. But a strong dollar and rising commodity prices also contribute significantly. Of course, this hasn't escaped the board either. The company wants to overhaul its most important brands and invest more in advertising, its product range and online retail. In addition, the Elmex and Meridol distribution network is to be expanded.

Unlike many other consumer goods makers, the Colgate maker realized relatively early that it should expand into emerging markets. Its products could already be bought in India in 1937. Almost 20 years later, the first factory opened there. Even today Colgate-Palmolive benefits from its strong distribution network in Asia. It wants to profit from the growing middle class and the growing population in general. And oral care products haven't made it everywhere in the world by a long shot - so good opportunities for Colgate. Recently, the pet food segment with its subsidiary Hill's has provided stronger growth. By now the company can count itself as the number 3 pet food maker worldwide. And this market will keep growing in the future too.

Will dividend hunters be happy here?

I think so. Colgate-Palmolive has been paying a dividend to its shareholders since 1895. And since 1963 it has even been raised year after year. The average dividend increase over the last 10 years is around 8%. So the company is one of the highly coveted Dividend Kings (increases for over 50 years). However, it also has to be said that the dividend has only been raised slightly in recent years, but better than nothing. The payout ratio of 60 percent is in the green zone - so there's still enough money left in the company for investments.

Conclusion:
Yes, Colgate-Palmolive is currently going through a transition phase, and you can see that very clearly in the share price. I still believe that this phase can be overcome soon and the price will pick up again. The company has extremely strong brands in its portfolio that will be needed worldwide in the future as well. So if you're looking for a solid stock and a reliable dividend payer, you're in good hands here.