Colgate-Palmolive: An Example Of A Great Business Model But Not A Great Stock To Buy

Colgate-Palmolive Company (CL) reported its third quarter performance. Earnings for the quarter were in line with expectations, however sales volume grew by 2%, which was less than what was expected by the market. CL has a great business model and we are bullish on its business model, but we think current valuations are high if we compare them with its competitors. We recommend investors not to buy the stock before a valuation/price correction.

CL offers a dividend yield of 2.4%. Quarterly dividends for the company have increased from $0.4 in 2009 to the current $0.62. We believe the company's dividends are sustainable because it has a robust operating cash flow yield of 6% and a free cash flow yield of more than 4%. 

More than three quarter of the company's sales are derived from markets outside the US, which makes currency exposure a serious risk to the company's financial performance. Weak consumer spending and pressure from commodity prices also add up to the risk associated with the company's top and bottom lines. 

Read more