To The Moon

$Colgate-Palmolive(CL)$

When dividend investors look for stability, consistency, and capital preservation, consumer staples often top the list. Within that sector, few names carry as much brand equity and long-term reliability as Colgate-Palmolive (NYSE: CL). With a current dividend yield of 2.2%, Colgate may not seem exciting at first glance. But under the surface lies a company that has quietly outperformed through recession, inflation, globalization, and trade disruption.

This article lays out the comprehensive long-term case for why I believe Colgate-Palmolive is a high-quality dividend stock, suitable for passive income investors with multi-decade time horizons. I’ll walk you through:

• The reliability and growth of its dividend

• Its revenue and operational cash flow trends

• Capital efficiency through return on invested capital (ROIC) vs WACC

• Key macro and industry-specific risks

• How Colgate compares to similar players like Clorox

• And finally, my fair value estimate, based on a proprietary discounted cash flow model

A Dividend That Prioritizes Consistency Over Flash

At 2.2%, Colgate’s dividend yield doesn’t jump off the screen in a sea of higher-yielding stocks. In fact, it often gets overlooked by income-seeking investors who chase 4% or even 6% yields. But the reality is that current yield is not the whole picture—and often not even the most important part of a long-term dividend strategy.

What Colgate brings to the table is unmatched reliability. With over 60 consecutive years of dividend increases, it’s a Dividend King — a rare club of companies with proven resilience through multiple market cycles.

Why does that matter? Because sustainable, growing dividends offer a powerful engine of compounding. If you’re a long-term investor reinvesting dividends, the snowball effect over 10 to 20 years can dwarf the difference between a 2.2% yield and a 5% yield today—especially if the latter is at risk of cuts during downturns.

“Dividend investing is not about chasing the highest yield — it's about betting on consistency, durability, and shareholder alignment.”

A Company Built on Recurring Revenue and Global Reach

Colgate-Palmolive is not a growth juggernaut, and it doesn’t pretend to be. It operates in low-volatility categories like oral care, personal hygiene, household cleaning, and pet nutrition. These are not luxury products — they’re daily necessities. And that makes Colgate’s revenue stream incredibly stable.

Over the past two decades, the company has grown revenue from $11.4 billion in 2005 to $19.9 billion in 2025 — a CAGR of approximately 2.9%. This may seem underwhelming at first, but consider the nature of its business:

• Colgate is present in over 200 countries

• It owns the #1 global toothpaste brand and dominates the oral care category in many international markets

• It sells high-frequency products with predictable demand and strong customer loyalty

This slow but steady revenue growth has been accompanied by consistent improvement in cash flow from operations, which grew from $1.8 billion in 2005 to $4.0 billion today, a CAGR in the mid-single digits. That’s exactly the kind of dependable performance dividend investors should prize.

Capital Efficiency: The Real Engine of Long-Term Returns

Where Colgate really distinguishes itself is in its ability to generate high returns on capital deployed — a crucial factor for long-term compounding.

Let’s break down the numbers:

• Return on Invested Capital (ROIC): 26.4%

• Weighted Average Cost of Capital (WACC): Estimated around 8%

This means Colgate earns more than 3x its cost of capital on every dollar invested in the business. That’s rare — and it suggests the company has:

1. Durable competitive advantages (brand equity, pricing power, distribution networks)

2. Disciplined capital allocation by management

3. A business model that doesn’t require massive reinvestment just to maintain margins

These are essential ingredients for any dividend stock. The higher a company’s spread between ROIC and WACC, the more value it creates per dollar, and the more likely it can grow earnings (and dividends) without needing to take on debt or dilute shareholders.

The Risks: Commodity Volatility and Global Trade Pressures

Even blue-chip consumer staples are not immune to external shocks. There are two major risks Colgate investors should be mindful of:

1. Commodities and Input Costs

Colgate’s products require raw materials like palm oil, paper, packaging, and other agricultural or industrial inputs. These commodities are highly cyclical and often volatile, especially during periods of inflation.

The company mitigates some of this risk using futures contracts, locking in prices in advance. However, volatility still impacts margin visibility, and a prolonged inflationary spike could erode profitability.

2. Tariffs and Geopolitical Tensions

Trade disputes, especially with China and other large emerging markets, pose a growing threat to multinational manufacturers. Colgate recently projected a $200 million impact in 2025 from higher tariffs. If trade negotiations fail or escalate, the company could face increased supply chain disruption and higher costs of goods sold.

But here’s where Colgate’s scale is an advantage: it has the capital and geographic footprint to adapt. It is currently investing $2 billion in reshoring U.S. production and has the flexibility to shift manufacturing across global sites — a strategic moat smaller players like Clorox don’t enjoy to the same extent.

Colgate vs. Clorox: A Quick Dividend Stock Comparison

Let’s briefly compare Colgate (CL) to another popular dividend stock: Clorox (CLX).

While Clorox currently offers a higher yield, its debt burden, slower post-pandemic recovery, and lower capital efficiency make it less attractive from a compounding perspective. Colgate’s global scale, stronger ROIC, and better dividend growth potential make it more suitable for conservative, long-term dividend investors.

Valuation: My DCF Fair Value Estimate

Based on my discounted cash flow model, I estimate Colgate’s fair value at approximately $120 per share. With the stock trading around $91.81, this implies a potential upside of 20–30% — a substantial discount for a defensive, recession-resilient business with a long dividend track record.

The model assumes:

• Revenue growth of 2–3% annually

• Free cash flow margins of 17–19%

• A long-term discount rate of 8%

• A terminal growth rate of 2%

I also apply a margin of safety to account for unknowns like higher interest rates, geopolitical instability, and margin compression.

Final Verdict: Why I’m Bullish on Colgate for the Long Haul

Colgate-Palmolive is not the most exciting stock on the market. But for income-focused investors looking to build a durable foundation of growing passive income, it’s a fantastic choice.

Here’s why:

• 60+ years of dividend increases

• Industry-leading returns on capital

• Consistent cash flow and conservative balance sheet

• Strong international brand moat

• Currently trading below fair value

In an uncertain macro environment, stability matters. Colgate isn’t flashy — but it’s predictable, resilient, and shareholder-friendly.

And for that reason, it’s firmly on my watchlist — and one of my top candidates the next time I look to add a dividend stock to my long-term portfolio.

Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.

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