Colgate-Palmolive Cleaning Up With Institutional Support

Has support For Colgate-Palmolive Been Shaken?

Colgate-Palmolive’s (NYSE: CL) fourth quarter market results were a mixed bag, and shook support for the company. The point is, that support is still there, and it will most certainly drive this high-quality dividend growth stock higher in the coming year. One of the pillars of that support is the institutions' and investors' ownership of stock, which has helped to keep prices stable. Stock ownership  has risen 4% over the the last year and continues to rise. At last report, institutional buying was $2.85 billion in the bulls' favor, maintaining price above the $76 mark. Likewise, insider buying has occurred, but because the stock is held by just 0.25 percent of investors, it is irrelevant to price action.

Colgate-Palmolive Results Mixed

Colgate-Palmolive stock had a good quarter but there are many caveats to accompany that statement. While the $4.4 billion in revenue is up 1.9 percent compared to last year, it fell short of the market's expectations and was instead driven by higher pricing rather than volume growth.   In addition, on a YOY basis, volume is flat, which is a good thing. On the margin, however, pricing is worth 300 basis points of revenue, which was not enough to compensate for inflation and product-mix difficulties.   Furthermore, on an organic basis, the firm posted 3.0% growth, which is at the low end of the long-term range and 130 bps below the consensus.

In terms of earnings, the firm reported a 300 basis point decline in gross margin that was lower than predicted, providing a hint of strength on the bottom line.  Moreover, despite revenue losses, the adjusted $0.79 is up 2.5% from last year and is in line with market expectations. The good news is that revenue is anticipated to grow by 1% to 4% a year through 2022, with organic growth staying in the 3% to 5% range. On the other hand, the bad news is that despite growth forecast and growth results in the single digits, increased spending will cut into the margin.  The company CEO said, in the press release:

"There is still much uncertainty stemming from the COVID-19 pandemic, supply chain disruptions, increases in raw material and logistics costs and volatility in consumer demand and currencies. With costs expected to remain elevated in 2022, our funding the growth and revenue growth management initiatives, including higher pricing, will be more important than ever.”

Colgate-Palmolive Pays A Safe Dividend

At nearly 25X this year’s earnings consensus, Colgate-Palmolive shares are highly-valued, and rightly so. The firm has a strong balance sheet, a positive growth strategy, and is also a high-quality dividend stock. Furthermore, the price may stay range-bound in the short to mid-term.  However, the dividend, growth, and dividend growth will propel the company's stock to new heights in the long run. Also, the payout is currently around 2.2 percent, substantially above the broad market average, and a boost is expected with the next declaration.

The  Outlook

Following its financial statement, Colgate-Palmolive's shares fell, but strong buying quickly confirmed support at a higher level than we've seen in the past. To sum up, support now appears to be near $80, at the mid-point of the 12-month range and the 150-day moving average. Assuming that support holds, we expect this tightly held stock to range in a new, tighter range between $80 and $85 with the bias toward a test of resistance and possibly break to fresh highs.

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