Question

Colgate-Palmolive

Access the U.S. Securities and Exchange Commission (Links to an external site.) website and complete the steps below:

1. Go to the “Filings” tab and click on “Company Filings Search.”
2. On the EDGAR| Company Filings page, you can search for Colgate-Palmolive (CL) conducting a Company Name Search or a Fast Search by using ticker symbol “CL.”
3. On the EDGAR Search Results page for COLGATE PALMOLIVE CO CIK#: 0000021665, click on the latest 10-K Filing.
4. From the latest 10-K filing, click on Format|Documents.
5. On the next page, click on the first Document’s link: COLGATE-PALMOLIVE 10K LATEST DATE |LATEST DATEx10k.htm
6. Retrieve Item 6—Selected Financial Data and Item 15-Historical Financial Summary

Using CL’s financial data, answer the following questions regarding Colgate-Palmolive’s growth dividends, share buybacks (treasury stock), free cash flow, and ROE:

• Do you think one of the reasons to like Colgate’s stock is due to the fact the company is a dividend machine? Do you think dividend increases are a sign of confidence? Would you consider becoming a dividend growth investor for Colgate?
• How does CL’s treasury stock share buybacks inflate the company’s ROE?
• Do you think that the way Colgate-Palmolive Co. spends its free cash flow affects its high ROE?

Answer 1

The following is the table from Colgate Palmolive 10k historical information

COLGATE-PALMOLIVE COMPANY Historical Financial Summary For the years ended December 31, (Dollars in Millions Except Per Share Amounts) (Unaudited) 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 $ 15,544 $15,454 $15,195 $ 16,034 $17,277 $17,420 $ 17,085 $16,734 $15,564 $15,327 2,400 2,024 e 2,441 ) 1,384 ) 2,180 2,241 2,472 2,431 2,203 ) 2,291 Continuing Operations Net sales Results of operations: Net income attributable to Colgate-Palmolive Company Earnings per common share, basic Earnings per common share, diluted Depreciation and amortization expense 2.76 2.30 2.74 ) 1.53 2.38 2.416 2.60 2.49 2.22 2.26 2.75 511 2.28 475 2.725) 443 1.52 449 2.36 442 2.38 439 2.57 425 2.47 421 2.16 376 2.18 351 Financial Position 1.1 1.4 1.3 1.2 1.2 1.1 1.2 1.2 1.0 1.1 Current ratio Property, plant and equipment, net 4,072 553 Capital expenditures Total assets Long-term debt Colgate-Palmolive Company shareholders' equity 3,881 436 12,161 6,354 3,840 593 12,123 6,5206 3,7964 691 11,935 ,246 ,0804 757 13,440 5,625 ,083 670 13,968 4,732 3,8423 ,668 3,693 565 537550 13,379 1 2,711 11,163 4,911 4,417 2,806 3,516 575 11,125 2,812 1 2,676 6,566 (102) (60) (243) (299) 1,145 2,305 2,189 2.375 2 ,675 3,116 0.23 0.28 0.03 (0.04) 1.55 2.79 2.60 2.71 2.95 3.26 1.66 59.52 1.59 75.45 1.55 6 5.44 1.50 66.62 1.42 69.19 1.33 65.21 1.22 52.27 Share and Other Book value per common share Cash dividends declared and paid per common share Closing price Number of common shares outstanding in millions) Number of common shareholders of record Number of employees 1.14 46.20 1.02 40.19 0.86 41.08 862.9 874.7 883.1 892.7 906.7 919.9 935.8 960.0 989.8 988.4 21,900 34,500 22,700 35,900 23,600 36,700 24,400 37,900 25,400 37,700 26,900 37,400 27,600 37,700 28,900 38,600 29,900 39,200 30,600 38,100 Note: All per share amounts and numbers of shares outstanding were adjusted for the two-for-one stock split of the Company's common stock in 2013. Net income attributable to Colgate-Palmolive Company and earnings per common share for the full year of 2018 include $125 of aftertax charges related to the Global Growth and Efficiency Program, a $15 benefit from a foreign tax matter, and an $80 charge related to U.S. tax reform.

A.Colgate has consistently increased the dividends YOY from 0.86 in 2009 to 1.66 in 2018. However during the same period the companies earnings per share has not moved up much 2.26 in 2009 and 2.76 in 2018 along with that the bookvalue per share has reduced from 3.26 to 0.23. This implies that the company is not having any investment opportunities within its existing business and has started distributing the cash to shareholders in the form of dividends and buybacks (due to reduction in number of shares outstanding).I would not consider becoming dividend growth investor in colgate as the dividend increase till date is due to higher dividend payout and its not accompanied by earning growth.

B. The companies stock buyback will increase the ROE as it decreases the equity while earnings will remain same.

C. Yes the way Colgate-Palmolive Co. spends its free cash flow affects its high ROE as if the companys reduces its distribution of dividend and no buy backs this will increase the equity while earnings will be same there by leading to lower ROES.