Colgate Boosts Investors' Confidence

Zacks

Driven by strong positive outlook, the global consumer products manufacturer, Colgate-Palmolive Company (CL) is going for a two-for-one stock split of its common shares. Also, the company has increased its quarterly cash dividend effective from the second quarter of fiscal 2013.

The company will distribute the additional shares relating to the split on May 15 this year to the shareholders of record date as of Apr 23, 2013. This will bring Colgate’s total shares outstanding to 936 million from the current level of 468 million of a par value of $1.00 per share. Though splitting shares has no real impact on the company’s performances or share prices, but it makes the shares affordable to small investors.

Concurrently, Colgate announced its decision to raise the quarterly dividend by 6 cents on a pre-split basis to 68 cents per share. This translates into a 10% hike from the prior dividend. The increased dividend will be paid on May 15, 2013 to stockholders of record as of Apr 23. Prior to this announcement, this Zacks Rank #3 (Hold) stock had been paying a quarterly dividend of 62 cents per share.

The strength of Colgate’s business model is reflected in its strong cash generation capabilities and its commitment to return value to the shareholders. We believe that continued dividend hikes will increase investors’ confidence.

Colgate’s strong balance sheet and cash flows provide financial flexibility to the company for taking shareholder-friendly moves, R&D investments and global business expansions. During fiscal 2012, it shelled out $1,277 million on cash dividends. Cash and cash equivalents stood at $884 million at the end of the fiscal, while Colgate generated $3,196 million of cash from operational activities. We remain encouraged by Colgate’s strong cash position and its ability to service long-term debts.

Other companies that recently increased dividend include Nordstrom Inc. (JWN), by 11% to 30 cents, The Coca-Cola Company (KO) by 10% to 28 cents, and GameStop Corporation (GME) by 10% to 27.5 cents.

We believe that dividend hikes not only enhance shareholder’s return, but raise the market value of the stock. Through dividend raises, companies persuade investors to either buy or hold the scrip instead of selling these. Looking ahead, Colgate remains confident of its growth potential, suggesting enhanced value for shareholders via dividend payout as well as share buybacks.

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