Colgate vs Procter & Gamble: Which Stock Is the Best?

Consumer defensive companies enjoy a unique position amid uncertain market and economic conditions. Stable demand allows them to pass on higher prices to their consumers.

Although skyrocketing returns cannot be expected from these stocks, they do tend to hold their ground during economic uncertainties. Plus, they tend to pay stable dividends.

As optimism about interest rate cuts grew at the tail end of last year, consumer staples underperformed the broader market. However, since then, the rose-tinted viewed have become a bit more foggy.

Over the past month, the Consumer Staples Select Sector SPDR Fund (NYSEARCA:XLP) gained 3.4%, outpacing the 3.2% gains of the SPDR S&P 500 ETF Trust (NYSEARCA:SPY), which represents the broader market.

Against this backdrop, we examine consumer defensive juggernauts Colgate-Palmolive Company (NYSE:CL) and The Procter & Gamble Company (NYSE:PG) to find out which is the best buy now.

What Does Volume Decline Spell for Colgate?

With a fascinating history that spans over 200 years, consumer defensive industry giant Colgate markets its products in over 200 countries and territories. As of the full year 2023, Colgate commanded 41.1% of the global toothpaste market and 31.5% of the manual toothbrush market.

Last year, inflation kept Colgate’s top line buoyed when it realized a 10% net selling price growth, leading to an 8.5% year-over-year increase in net sales to $19.46 billion.

However, its volume reduced by 0.5%, with developed markets such as North America and Europe seeing volume declines and emerging markets like Latin America and Africa/Eurasia seeing volume growth.

Conversely, as prices remained high, volume declines failed to stunt organic sales (net sales excluding the impact of foreign exchange, acquisitions and divestments), which also increased by 8.5% in 2023, marking the fifth consecutive year of growth at or above the company’s targeted range 3%-5%.

The bottom line also remained in good shape with full-year non-GAAP EPS rising by 8.8% versus the prior year to $3.23 per share.

Colgate Is A Solid Income Opportunity

As a consumer staple pioneer, Colgate has a long history of dividend payments. It has paid uninterrupted dividends on its common stock since 1895 and increased payouts for 60 years. This month, the company increased its quarterly dividend from $0.48 to $0.50 per share, payable to shareholders on May 15, 2024.

Colgate’s forward annual dividend rate of $2.00 yields 2.25% on the current share price level. The company distributes more than half of its earnings in dividends, with a 59.13% payout ratio.

Last year, it paid $1.75 billion in dividends. While this might appear unsustainable for some companies, Colgate’s long history of uninterrupted dividend payouts is reassuring.

Colgate also continues to invest in its brand. After a 19% increase in advertising expenditures last year, 2024 is expected to see even greater levels of brand investment. Moreover, the company is turning toward digitization and analytics to drive greater efficiencies across its business lines.

With all that said, the company is expected to face headwinds from foreign exchange rates, which are concerning given that about two-thirds of its net sales originate outside the U.S.

For 2024, organic sales growth is expected to be within its 3%-5% target range, while net sales are expected to grow by 1%-4%. On a non-GAAP basis, earnings per share are anticipated to grow in the mid-to-high single digits.

Is Procter & Gamble Faring Better?

Another consumer defensive giant, Procter & Gamble has an operational history spanning more than 180 years.

With a strong brand value and notable global names such as Gillette, Head & Shoulders, Tide, and Old Spice, the company has carved out a significant share in the consumer goods market. It enjoys significant market share command in all its segments.

Like Colgate, Procter & Gamble is also facing a slowdown in volume growth. In the fiscal year 2023 (which ended June 2023), Procter & Gamble’s sales growth was offset by a 3% decrease in unit volume from the prior year.

As a result, net sales increased by a modest 2% to $82 billion, primarily due to higher pricing growth of 9%. However, organic sales increased by 7%.

According to its latest quarterly report (Q2 of fiscal 2024, ended December 2023), the situation does not seem to have changed considerably.

For the quarter, net sales grew 3% year-over-year to $21.4 billion, while organic sales surged by 4%, with a robust 9% growth in the grooming segment.

Core EPS increased 16% from the prior-year period to $1.84 but organic volume during the quarter dropped by 1%.

Similar Dividend Yield & Solid Payout History

Procter & Gamble has also paid dividends for 133 years and increased its dividends for 67 consecutive years.

In January, the company declared a quarterly dividend of $0.9407 per share, which was payable to its shareholders on or after February 15, 2024. The annual dividend of $3.76 yields 2.33% on prevailing prices. It also has a high payout ratio of 58.27%.

In the recent past, factors like commodities, transportation, and foreign exchange headwinds have wiped out nearly half of Procter & Gamble’s earnings but, as a testament to its robustness, the company continues to grow its earnings.

As it is well-positioned in all the markets in which it operates, brand value might help it capture a bigger market share in the future.

Similar to Colgate, foreign exchange is also expected to impair sales growth by approximately one to two percentage points for fiscal 2024.

Compared to fiscal 2023, all-in sales are anticipated to increase by 2% to 4%, while organic sales are forecast to rise by 4% to 5%. Additionally, Procter & Gamble expects to pay more than $9 billion in dividends.

Colgate vs Procter & Gamble Stock, Which Is Best?

According to 25 analysts, Procter & Gamble is a better stock to own with higher upside to fair value and a higher dividend yield of 2.32% versus 2.26%.

While consumer staples have underperformed the broader market over the past year, their robust dividends and stable financials make them desirable stocks to own at this juncture.

Colgate-Palmolive and Procter & Gamble, both elite “Dividend Kings,” exhibit the ability of consumer staples to pass on higher prices to their consumers. Both companies posted increases in net sales despite volume declines. So, as inflation continues to be a prominent fixture, these stocks are likely to remain sound portfolio additions.

While both companies might be bought for their resilience, Procter & Gamble currently has a higher dividend yield. Additionally, its forward non-GAAP P/E of 25.22 is marginally lower than Colgate’s 25.44x.

The bottom line is, Wall Street analysts see Procter & Gamble as a better value with a higher yield at this time.

#1 Stock For The Next 7 Days

When Financhill publishes its #1 stock, listen up. After all, the #1 stock is the cream of the crop, even when markets crash.

Financhill just revealed its top stock for investors right now... so there's no better time to claim your slice of the pie.

See The #1 Stock Now >>

The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.