Thursday, January 31, 2013

Stocks with Over 100 Years of Uninterrupted Dividends (Part I)

In the current volatile market, investors should remember two important investing rules, which have been mentioned over and over again by the world’s most successful investor, Warren Buffett. The first rule was not to lose money, and the second rule was not to forget the first rule. Investors would feel much safer after parking their money in businesses that  have delivered terrific operating performances, especially companies with a great history of dividend payment over a long period of time. I am quite excited with corporations that have returned cash to shareholders via uninterrupted dividends for more than a century, includingColgate Palmolive (NYSE: CL)Johnson Controls (NYSE: JCI) and Church & Dwight(NYSE: CHD).
Colgate Palmolive, founded in 1806, has been one of the leading global consumer goods companies, with operations in more than 200 countries. It had two main product segments: Oral, Personal and Home Care; and Pet Nutrition. Actually, Colgate reminds consumers around the world of the most trusted brands of toothpaste and toothbrush. Thus, Oral Care is the company’s main business in Greater Asia/Africa, with sales accounting for 73% of total region’s sales. In addition, via Hill’s, the Pet Nutrition segment is also the global leader in specialty pet nutrition for dogs and cats, with products in more than 95 countries, representing 13% of the total company’s sales in 2011.
Colgate has been paying uninterrupted dividends since 1895. In the last 10 years, the dividend has kept increasing, from $0.72 per share in 2002 to $2.27 per share in 2011. The current dividend yield is 2.4%. During the same time, it also delivered a high return on invested capital consistently, in the range of 28.18% to 39.32%. Trailing twelve months, its ROIC was 32.47%. Currently, Colgate Palmolive is trading at $104.04 per share, with the total market capitalization of $49.16 billion. The market is valuing Colgate at 17.5x forward earnings, and 19.6x book value.
Johnson Controls, incorporated in 1885, is considered to be the world’s leader in energy optimization and operational efficiencies for customers in more than 150 countries. Johnson Controls has three main businesses: Building Efficiency, Automotive Experience, and Power Solutions. The majority of its revenue ($21.33 billion) came from the Automotive Experience segment,  accounting for 50.8% of the total revenue. The second biggest segment belongs to Building Efficiency, with $14.7 billion in revenue, accounting for 35% of total 2011 sales.
Johnson Controls has paid uninterrupted dividends since 1887. It also has raised its dividends continuously for the last 10 years, from $0.24 per share in 2003 to $0.72 per share in 2012. The current dividend yield is 2.4%. Trailing twelve months, it generated a 7.25% return on invested capital. At the current trading price of $30.11 per share, the total market capitalization is $20.6 billion. The market is valuing the company at 9.5x forward P/E and 1.8x book value.
Church & Dwight, founded in 1846, is the household personal care manufacturer with its 8 power brands including ARM & HAMMER, TROJAN condoms, XTRA laundry detergent, etc. The majority of its revenue was derived from the sales of household products, accounting for 47% of the company’s total sales, whereas personal care products represented around 25% of the total revenue in 2011. The largest customer has been Wal-Mart, with 23% of total consolidated sales.
Church & Dwight began to pay uninterrupted dividends in 1901. The current dividend yield is 1.8%. At the current price of $53.42 per share, the total market capitalization is $7.46 billion. The market is valuing the company at relatively high valuations: 18.9x forward earnings, 3.6x book value. 
Foolish Bottom Line
Among the three, Colgate delivered the highest return on invested capital, and the highvaluation in terms of book value was due to its leveraged capital structure. Johnson Controlsseems to be the cheapest, with single digit forward earnings valuation. Church & Dwight seems a bit expensive, but its 5-year average earnings valuation was also high, at 20x. However, with a strong history of paying uninterrupted dividends, the three stocks mentioned above definitely make investors feel safe in their long-term income portfolios.

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