This Dividend King Stock Just Offered a Superb Buy-the-Dip Opportunity

The old saying "get while the getting is good" is often relevant in financial markets. Put it this way: Even in strong bull markets, there are always stocks that are faltering, even some quality names.

Some investors wait for those declines to deepen before getting involved. Occasionally, that strategy works, but it's not foolproof. Some stocks simply aren't prone to deep drawdowns, meaning that when they do dip, investors may want to act with haste because the dip might not grow.

Colgate-Palmolive (NYSE: CL) may be a good example. Off 4.2% for the week ending July 23 and 9.3% below its 52-week high, this consumer staples stock is dipping.

This Dividend King is retreating, but that may be short-lived. Image source: Getty Images.

Here's where history starts to matter. Colgate's typical drawdown is 11% to 17%. Even at the high end, that's not even a bear market. Plus, most of the stock's worst drawdowns occurred during catastrophic broader market events, such as the bursting of the dot-com bubble in 2000 or the global financial crisis. So if history repeats as it often does in financial markets, investors may not want to wait too much longer before buying shares of the Ajax maker.

Dividend royalty

It yields just 2.3%, but Colgate is a Dividend King, or one of the companies with a dividend increase streak of at least 50 consecutive years. Actually, Colgate's dividend increase is 64 years.

So when the Irish Spring maker started its payout streak, John F. Kennedy was president and color television was a luxury; the streak began seven years before the first moon landing. Another fun fact: Just 10 companies have longer payout streaks than Colgate.

Historical facts aside, Colgate's status as a Dividend King is relevant to investors considering buying the stock on its current dip for another reason. Broadly speaking, the Dividend Kings are 30% less volatile than the S&P 500. So if Colgate lives up to that pedigree, its current pullback may not get much larger.

It's one of the trade-offs investors make with blue chip dividend stocks like Colgate. Dividend Kings probably won't generate Nvidia-esque returns, but market participants gain the benefits of dependable income and reduced turbulence, and there's value in those traits.

Dividend safety, tech talk

Arguably, the dividend is the source of Colgate's allure. The payout is sacrosanct, and any negative action on that front would likely prompt investors to dump the stock. There are no guarantees in investing, but this payout appears safe.

Last year, the company generated $3.63 billion in free cash flow, which covered its $1.82 billion in dividend payments and $1.21 billion worth of share repurchases. Importantly, investing in the business and returning capital to investors are higher up Colgate's list of priorities than acquisitions, indicating the company has its eyes on the right prize when it comes to capital allocation.

And while this is far from a tech stock, Colgate is investing in artificial intelligence (AI) and other technologies to better connect with customers across a variety of platforms while bolstering supply chains. Those moves could pay dividends for the company, and thus investors, over the long term.

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