Is Colgate-Palmolive Company (CL) the Best Dividend Stock of All Time?

We recently compiled a list of the 10 Best Dividend Stocks of All Time. In this article, we are going to take a look at where Colgate-Palmolive Company (NYSE:CL) stands against the other dividend stocks.

Dividend stocks aren’t a quick fix for investing; they offer lasting rewards over time. Unfortunately, many investors miss the boat on this and expect to strike it rich overnight. When that doesn’t pan out, they chase the latest stock market trends, ignoring the steady gains that dividend stocks can provide. This trend has been evident over the past year, with AI stocks taking the spotlight and leaving income stocks in the dust. However, there’s a silver lining: many tech companies have begun offering dividends this year, highlighting their long-term potential.

The current yields of these tech stocks might be small, which leads many income investors to overlook their impressive growth records. This is unfortunate because dividend growth can significantly boost both long-term income and capital gains. Analysts believe that dividend growth and sustainability are more crucial than just the yield. For instance, Microsoft’s roughly 864% return over a decade far outpaces the returns from non-tech stocks like AT&T and Chevron, despite their higher yields. The tech giant currently pays $0.75 per quarter and offers a dividend yield of 0.7%. However, you need to keep in mind that its quarterly dividend was $0.28 a decade ago and its dividend yield was 2.5%. Despite the nearly tripling its quarterly dividend, the stock's yield went down to 0.7% and that was a great thing for its dividend investors.

Dividend stocks are often compared not just with high-yield stocks but also with those that don’t pay dividends to provide investors with a comprehensive view. According to data from Hartford Funds, from 1973 to 2023, dividend-paying companies offered an average annual return of 9.17%, while stocks without dividends only returned 4.27%. The report also noted that companies with stable dividends had an average return of 6.74%, which lagged behind the performance of companies that increased their dividends.

While regularly increasing dividends is challenging, maintaining consistent payouts year after year is also no easy feat for companies. Analysts warn against yield traps—stocks with high yields but unstable dividend policies. Brian Bollinger, president of Simply Safe Dividends, shared his views on dividend investing in a CNBC interview. He recommended focusing on top-quality companies, which often provide dividend yields of around 3% to 4%. These firms usually show steady growth in their dividend payments, boosting the annual income stream and helping to counteract inflation. He also pointed out that stocks with lower yields tend to be safer investments with more reliable payout structures.

In this article, we will take a look at some of the best dividend stocks of all time that have consistent records of paying dividends to shareholders.

Our Methodology:

For this article, we scanned the list of companies that have paid dividends to shareholders for at least 75 years. From that list, we picked companies with dividend yields of above 2%, as of July 23. We analyzed these companies through their balance sheets and overall financial health to determine their dividend stability. Additionally, we assessed the sentiment of hedge funds for each stock using Insider Monkey’s Q1 2024 database. The stocks are arranged in ascending order based on the number of hedge funds that hold stakes in these companies. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).

An array of toothpaste, toothbrushes, and mouthwashes on a bright background, highlighting the company's oral care products.

Colgate-Palmolive Company (NYSE:CL)

Number of Hedge Fund Holders: 50

Dividend Yield as of July 23: 2.05%

An American multinational consumer products company, Colgate-Palmolive Company (NYSE:CL) ranks second on our list of the best dividend stocks of all time. The company has always been testing new business approaches, which have contributed to its status as a global leader in consumer products. Originally starting as a small soap and candle business, it has now diversified into a broad range of products. For Colgate-Palmolive Company (NYSE:CL), recent strategic shifts, such as focusing on e-commerce, are showing positive results. Although this progress is partially reflected in the company’s valuation, these strategic changes are expected to lead to consistently higher organic sales growth for CL compared to its competitors over the long term.

Colgate-Palmolive Company (NYSE:CL) qualifies as one of the best dividend stocks of all time because of its strong cash generation. In its recently announced second-quarter earnings, the company reported an operating cash flow of over $1.6 billion, up from $1.45 billion in the prior-year period. Its free cash flow before dividends came in at $1.4 billion, growing from $1.11 billion in the same period last year. During the quarter, it returned $867 million to shareholders through dividends. The company's quarterly earnings are well-received by Street analysts and investors. In the second quarter, the stock gained nearly 9% and its year-to-date returns are even more impressive at roughly 20%.

ClearBridge Investments highlighted reasons for Colgate-Palmolive Company (NYSE:CL)'s outperformance in its Q2 2024 investor letter. Here is what the firm has to say:

“Colgate-Palmolive Company (NYSE:CL), added to the portfolio in 2023, started outperforming materially toward the tail end of last year as growth, margin and market share momentum began to turn favorably, and that momentum has continued year to date as the stock has nicely outperformed the large cap staples group. The fundamental upside has been driven by a combination of healthy organic growth (with positive volumes), good gross margin progression, and strong re-investment spending supporting market share gains and future growth.”

On June 13, Colgate-Palmolive Company (NYSE:CL) announced a quarterly dividend of $0.50 per share, which was in line with its previous dividend. The company holds a 62-year streak of consistent dividend growth and has paid dividends without interruption for 129 years in a row. The stock's dividend yield on July 23 came in at 2.05%.

Of the 920 hedge funds tracked by Insider Monkey at the end of Q1 2024, 50 funds had invested in Colgate-Palmolive Company (NYSE:CL), down from 54 in the previous quarter. The stakes held by these hedge funds have a collective value of over $2.1 billion.

Overall CL ranks 2nd on our list of the best dividend stocks to buy. You can visit 10 Best Dividend Stocks of All Time to see the other dividend stocks that are on hedge funds’ radar. While we acknowledge the potential of CL as an investment, our conviction lies in the belief that some deeply undervalued dividend stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued dividend stock that is more promising than CL but that trades at less than 7 times its earnings and yields nearly 10%, check out our report about the dirt cheap dividend stock.

 

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Disclosure: None. This article is originally published at Insider Monkey.