Colgate-Palmolive (NYSE:CL) Will Pay A Larger Dividend Than Last Year At $0.48

The board of Colgate-Palmolive Company (NYSE:CL) has announced that it will be paying its dividend of $0.48 on the 15th of August, an increased payment from last year's comparable dividend. The payment will take the dividend yield to 2.5%, which is in line with the average for the industry.

Check out our latest analysis for Colgate-Palmolive

Colgate-Palmolive's Payment Has Solid Earnings Coverage

We aren't too impressed by dividend yields unless they can be sustained over time. Based on the last payment, Colgate-Palmolive's profits didn't cover the dividend, but the company was generating enough cash instead. Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don't think there is much reason to worry.

The next year is set to see EPS grow by 100.2%. If the dividend continues along recent trends, we estimate the payout ratio will be 51%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

Colgate-Palmolive Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The dividend has gone from an annual total of $1.24 in 2013 to the most recent total annual payment of $1.92. This means that it has been growing its distributions at 4.5% per annum over that time. Dividends have grown relatively slowly, which is not great, but some investors may value the relative consistency of the dividend.

Colgate-Palmolive May Find It Hard To Grow The Dividend

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. However, initial appearances might be deceiving. Over the past five years, it looks as though Colgate-Palmolive's EPS has declined at around 4.1% a year. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this can turn into a longer term trend.

Our Thoughts On Colgate-Palmolive's Dividend

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. We don't think Colgate-Palmolive is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 3 warning signs for Colgate-Palmolive that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.