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- A Dividend King Just Raised Its Payout Again, and the Margin Story Is Just Warming Up
A Dividend King Just Raised Its Payout Again, and the Margin Story Is Just Warming Up
A consumer defensive giant just raised its dividend for what looks like the 63rd year in a row. The Street yawned. But the cost program funding that hike is hitting an inflection, and the yield-plus-growth math is better than it looks.
Most dividend hikes get a polite nod and a shrug. Every so often, though, one doubles as a tell. Management quietly telegraphing what's coming next quarter, next year, next cycle.
That's what landed this week from a name your parents have probably owned forever. The yield isn't huge. Fine. Pair it with the multi-year margin program that's finally hitting its stride, though, and you've got a setup that pays you to be patient. No heroics needed.
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Meet the Pick
The stock is Colgate-Palmolive (NYSE: CL). Global consumer products giant. Toothpaste, Palmolive soap, Hill's Science Diet pet nutrition. Market cap sits around $91.06 billion shares near $91 after a modest 3.7% bump this week.
So what makes Colgate different from the rest of the staples crowd? Two things.
First, it's one of a tiny handful of true Dividend Kings, with what looks like its 63rd straight annual hike. Second, it owns the dominant pet nutrition franchise in Hill's, which has been compounding faster than the legacy oral care business for years.
A Boring Business That Owns Its Categories
Colgate isn't trying to reinvent anything. It sells toothpaste, mouthwash, dish soap, deodorant, and premium pet food in 200+ countries. Why does that matter? Because it owns roughly 41% of the global toothpaste market. And that share number has barely budged through every recession, FX shock, and consumer trade-down cycle of the past two decades.
That kind of category dominance is pricing power. And pricing power is what funds the dividend.
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Two things are really live in the business model right now:
- Hill's Pet Nutrition keeps pushing into premium vet and wellness channels, where the unit economics dwarf the base business.
- Management is deep into its multi-year "Funding the Growth" cost program, redirecting savings into digital marketing, R&D, and emerging market shelf space.
That last piece matters more than people realize. Colgate generates roughly half its sales from emerging markets. As the dollar weakens off recent highs, the FX translation drag that hit reported numbers in 2024 and 2025 starts running in reverse. That's a real tailwind. And the Street isn't modeling it aggressively yet.
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The Margin Story Is Finally Showing Up in the Numbers
Colgate's gross margin has been on a steady climb. Funding the Growth is now throwing off savings faster than input cost inflation can eat them. Management has guided for continued gross margin expansion through 2026.
The math is simple. Every 100 basis points of gross margin on Colgate's revenue base is real money dropping into operating income, dividends, and buybacks. Pricing has held firm. Volume is positive in most key categories. And Hill's keeps growing in the high single-digits with premium margins.
Action Item: Accumulate shares in the $88 to $93 zone. The goal is to pair the trailing yield with margin-driven EPS growth into 2027. |
Which is your preferred vehicle for dividend income? |
Hill's Is the Hidden Growth Engine
If you only know Colgate for toothpaste, you're missing the better half of the story. Hill's Science Diet and Prescription Diet sit at the premium end of pet food. The only part of pet food, by the way, that actually grew through the 2022 to 2024 consumer pullback.
Vets recommend it. Owners stick with it. Repeat purchase rates are the kind of thing traditional CPG companies dream about.
Pet humanization is a structural trend, not a fad. As more households treat pets like family, premium nutrition spend keeps climbing even when other categories slow. Hill's gives Colgate exposure to that secular tailwind without the channel disruption hammering the rest of consumer staples.
This is the piece I think gets re-rated as analysts model the next three years.
What the Latest Print Tells You
Colgate's most recent quarter showed organic sales growth in the mid-single digits with both pricing and volume contributing. That last bit matters. Most of the staples peer group is leaning entirely on price to hit numbers. That isn't sustainable.
A few things to anchor on:
- Organic growth has been positive every quarter for years, even through the 2022 inflation peak.
- Hill's keeps outpacing the rest of the portfolio on both top line and margin.
- Free cash flow conversion is strong, supporting both the dividend and ongoing buybacks.
The just-announced dividend hike confirms management sees the cash flow trajectory as durable. Companies don't raise the payout for a 63rd straight year if there's any doubt about what's coming. That's the tell.
The Yield, the Growth, and What It Means for Your Portfolio
At $91, Colgate yields roughly 2.3% on a trailing basis. Won't blow the doors off, I know. But the value here isn't in the headline number. It's in the consistency.
Colgate has raised its dividend every single year through every recession, currency crisis, and consumer downturn going back to the 1960s. The trailing 5-year dividend growth rate has run in the mid-single digits. Combine the current yield with that growth rate, and your forward income on shares bought today compounds meaningfully over a decade.
Action Item: This is a core income position. Not a swing trade. Think of it as the anchor that lets you take more risk elsewhere. The yield-on-cost five years out is the real prize. |
The Risks Worth Watching
No pick is bulletproof. A few things could push Colgate sideways before the thesis plays out:
- FX exposure cuts both ways. If the dollar rips again, reported growth gets dinged.
- Private label keeps gaining share in oral care in price-sensitive markets.
- Hill's faces credible competition from Mars, Nestle Purina, and a wave of premium DTC pet brands.
- The stock trades at roughly 24x forward earnings, which isn't cheap by historical standards.
Valuation is the one I'd watch most. Colgate is a quality compounder, not a deep-value play. If you're hunting for 50% upside in 12 months, look elsewhere. The thesis is mid-single-digit EPS growth, a growing dividend, and steady multiple support from the defensive nature of the business.
Putting It All Together
If you're building long-haul income and you want a business that's proven it can grow the payout through anything the global economy throws at it, Colgate fits the bill. The just-announced dividend hike confirms what the margin numbers have been telling you all year. Management has visibility into improving cash flow, the cost program is working, and Hill's keeps delivering above-portfolio growth.
You're not buying this for fireworks. You're buying it for the math. A 2.3% starting yield, mid-single-digit dividend growth, and a business that's been doing exactly what it does for over a century. Accumulate in the $88 to $93 zone, reinvest the dividends, and let it work.
Action Recap
✅ Buy Zone: $88 to $93
✅ Catalysts to Watch: Q2 earnings (late July) for confirmation of margin expansion and Hill's growth pace, plus continued FX tailwind from a weaker dollar
✅ Medium-Term Target: $105 to $110 over the next 12 to 18 months as the margin program flows through
✅ Risk Management Tip: Reassess if shares break below $82 or if gross margin trajectory reverses on the next two prints
Setup Scorecard
Entry Zone: $88 to $93
Target: $105 to $110 over 12 to 18 months
Stop Loss: Reassess below $82
Catalyst Timeline: Dividend hike (this week), Q2 earnings late July, full-year margin guidance update in October
Confidence Level: Medium-High. The business is durable, the dividend signal is strong, but valuation requires patience and the thesis plays out over quarters, not weeks.
That’s all for today’s edition of the Dividend Brief.
Thanks for reading, and if you have any feedback or dividend stocks you want me to take a look at, just reply to this email!
—Noah Zelvis
DividendBrief.com