Down 15% Year to Date, Is This Dividend King a Buy?

For the last 25 years, Colgate-Palmolive (NYSE: CL) has been a good stock to own. Since the turn of the century, it has grown its dividend by 558%. Anyone who put $10,000 into shares in January 2000 would be sitting on a 352% capital gain while receiving $1,230 in dividends a year.

Notice I said a "good" stock, not a great one. Although it's a global giant and world leader in consumer goods from toothpaste to dish soap and pet food, Colgate-Palmolive's share price has narrowly trailed the S&P 500 index this century, with the latter up 385% since January 2000.

Defenders of the stock would say that what Colgate-Palmolive lacks in market outperformance, it makes up for in greater safety, lower volatility, and superior dividend growth. And a decade ago, that was certainly true. Colgate-Palmolive helped shareholders to navigate the Great Recession and its fallout better than most stocks, growing its dividend by 162% in the decade leading up to 2015. And in 2008, its shares dropped just 10% as the major indices tanked by 30% or more.

But that was then. With shares down 15% year to date amid a bull market in full swing, does Colgate-Palmolive deserve a place in your portfolio? Let's see what the numbers say.

Sixty-two years of annual dividend hikes -- with one caveat

Colgate-Palmolive is a member of a very exclusive club -- the "Dividend Kings," companies that have raised their dividends each year for at least the last 50 years. (It has raised its dividend annually for the last 62 years.) Out of around 54,000 publicly traded companies, only 55 stocks are now Dividend Kings, so barely one in 1,000 have hit this milestone.

But there's a caveat. Those dividend hikes can be nominal, or token increases that badly lag the rate of inflation. That's what's happened in Colgate-Palmolive's case. Over the last five years, it's raised its dividend by 18%, compared to the 25% inflation the U.S economy has had in that time frame. This means that the stock isn't rewarding income investors by the most important metric: increased purchasing power over time.

Image source: Getty Images.

To make matters worse, shares have fallen 7% over the last five years, even as the S&P 500 returned 94%. One of the biggest headwinds facing Colgate-Palmolive is a stronger dollar, as less than 19% of its revenue comes from the U.S. market. As the dollar rises, the 81% of Colgate-Palmolive's sales that occur in foreign currency transactions get converted into fewer dollars, which hurts earnings per share.

For now, the dollar may have more room to fall, as it typically drops during times of falling interest rates. But with traders pricing in a 65% likelihood of a rate cut in December, that's far from a done deal, as Federal Reserve Chair Jerome Powell took pains to emphasize in his Federal Open Market Committee (FOMC) remarks last month.

But a stronger dollar doesn't explain all of Colgate-Palmolive's recent weakness. Organic revenue, which excludes acquisitions, divestitures, and foreign exchange rates, only grew 1.2% in the first nine months of 2025. Meanwhile, operating profits were down year over year in every division except the African and European markets; the Latin American market, Colgate-Palmolive's biggest division with $337 million in third-quarter sales, had an 8% drop.

Three reasons for investors to pass on Colgate-Palmolive -- and one to consider it

First, with a roughly 2-to-1 chance of an additional rate cut in the next two months, the path of least resistance for Colgate-Palmolive stock in the near term is probably downwards. That's especially true if the economy softens -- not only because of the increased likelihood of a rate cut, but also because this company, while typically considered a defensive stock, isn't totally immune to economic slowdowns. Its revenue fell by 6%, or $210 million, in the first quarter of 2009, the first full year of the Great Recession.

Second, there are other fundamentals to consider. Earnings fell by 0.3% last quarter, while revenue climbed by just 1.9%. Those numbers don't inspire confidence in a meaningful dividend increase in 2026.

Third, the company's debt-to-equity ratio is 6.8. With $1.47 billion in total cash to $8.42 billion in debt, this means the company is shouldering $6.80 in debt for every $1 in equity. For context, a healthy debt-to-equity ratio is generally thought to be in the range of 1.0 to 2.0.

One point in Colgate-Palmolive's favor is its 2.7% dividend yield, which is more than double that of the average S&P 500 company. But in my view, this doesn't rescue the stock as an income investment, considering that future dividend hikes will likely be below the rate of inflation. As Colgate-Palmolive continues to groan under the weight of a strong dollar, income investors should look elsewhere.

William Dahl has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Colgate-Palmolive. The Motley Fool has a disclosure policy.