Colgate-Palmolive Company (NYSE:CL) will increase its dividend from last year's comparable payment on the 15th of May to $0.50. The payment will take the dividend yield to 2.3%, which is in line with the average for the industry.

Check out our latest analysis for Colgate-Palmolive

Colgate-Palmolive's Dividend Is Well Covered By Earnings

Unless the payments are sustainable, the dividend yield doesn't mean too much. Prior to this announcement, Colgate-Palmolive's dividend was comfortably covered by both cash flow and earnings. This means that a large portion of its earnings are being retained to grow the business.

The next year is set to see EPS grow by 51.4%. If the dividend continues on this path, the payout ratio could be 47% by next year, which we think can be pretty sustainable going forward.

Colgate-Palmolive Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2014, the dividend has gone from $1.36 total annually to $2.00. This means that it has been growing its distributions at 3.9% per annum over that time. Dividends have grown relatively slowly, which is not great, but some investors may value the relative consistency of the dividend.

Colgate-Palmolive May Find It Hard To Grow The Dividend

Investors could be attracted to the stock based on the quality of its payment history. However, Colgate-Palmolive's EPS was effectively flat over the past five years, which could stop the company from paying more every year. Growth of 0.3% per annum is not particularly high, which might explain why the company is paying out a higher proportion of earnings. This could mean the dividend doesn't have the growth potential we look for going into the future.

We Really Like Colgate-Palmolive's Dividend

Overall, a dividend increase is always good, and we think that Colgate-Palmolive is a strong income stock thanks to its track record and growing earnings. Earnings are easily covering distributions, and the company is generating plenty of cash. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 2 warning signs for Colgate-Palmolive that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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