Welcome back. Everyone.
On today's episode of the Joseph Carlson show, we're going to be
discussing one company that is basically Unstoppable.
It is a recession-proof durable dividend-paying company.
That's outperform the market over virtually every timeline
and it's not in my portfolio. So I want to run through some
analysis and talk about this company later in this episode,
you might be familiar with the company.
You might not either way, we're going to go through it.
It's called Church & Dwight and even if you're not familiar with
the company, you're almost certainly familiar with the
brand arm and Hammer. Now again we're going to go
through this company. I'm going to try to highlight
why the performance of it has been so incredibly.
Good over such a long period of time.
This is one of the contenders to be added into my portfolio or to
be on the watch list if any of my companies in my portfolio
aren't performing. Well this could be one that I
could potentially swap that Holding Out for and we have a
lot of other news to go through a lot of people understand that
I love dividend investing, but they're not really sold on it.
They don't really get why in this article released.
Just From The Wall Street Journal highlights, many of the
very points of vial of dividend investing.
So I thought this would be fun to run through as well.
We'll be looking at this article and why dividends really help
lift the market up when everything else seems to be
struggling. We also have the CEO of Costco
being asked, if there's any chance whatsoever in any
inflationary environment, like we're in right now, whether or
not he's going to raise the price of the one dollar and
fifty cent hotdogs and drink combo.
Now, you probably can predict The answer, but the way that he
says it is still funny so I'm going to show it anyway.
So we have a lot to jump into in this episode.
If you haven't already, hit the Subscribe button with the Bell
notification. Now let's go ahead and first
talk about the market for a minute.
This portfolio is doing okay over the past week.
It's move just barely one point one, nine percent that's four
thousand dollars over the past month or up 2.7 percent, eight
thousand, nine hundred dollars, these aren't big moves and I'm
okay with that. So far the portfolio has
performed this Are slightly better than the S&P 500.
That's nothing to brag about or get excited about but it is
doing okay. It's holding its own, it's
preserving my Capital to some extent.
Now, right now, in this market it feels like we're playing a
game of just trying to hang in there.
Just trying to have our portfolio.
Be okay. And weather the storm over the
past month. I'm up a little bit, but in
dividends. I'm up. 1200 $30, I was paid
over $1200 in dividends in the past 30 days, so no matter.
Matter what direction the market gains go, whether investors get
frightened, and sell out, whether they get excited and
enthusiastic and buy-in and capital appreciation goes up.
These dividends will continue to act as a snowball compounding my
returns over time, come thick or thin.
That's the whole purpose of this style of investing is so they
don't have to worry about price movements with your company's
we're focused on the underlying fundamentals.
The operating results of the company's, the dividends in cash
flow of the companies and whether they return that money
through Benson by packs. I'm okay with either, but I want
them to continually generate free cash flow and return it to
me. The shareholder.
The Dividends are the most secure way and most consistent
way that I've seen companies do that, I love the entire concept
of having the money moved from the customers Pockets into my
pockets. But right now, it has been a
game of just holding on and hoping that we're not going to
lose more money in the market. The big fear as of right now for
investors is that we're headed into earning season.
It will spark a neck Equity sell off because all of these
companies are going to be a very bad earnings reports.
They're going to lower guidance. They're going to say our margins
are being crushed because we're getting less customers and
inflation's eating away at our pricing power.
And because of that equities, which are stocks are going to
sell off. That's what the analysts and
experts are predicting. Now, I can't say whether that's
true or not, that is macro investing.
They're certainly going to be some companies that report, very
poor earnings, they guide down and their revisions will go down
and the stock price will go down so I could see that happening in
Scenarios. But I think that this might be a
concern that really doesn't come to fruition.
I think there is a chance. These companies report decent
earnings, the type of companies that usually report pretty
resilient earnings are dividend payers.
And the Wall Street Journal has an article out today that I
thought was pretty incredible. They highlighted a lot of things
that I've been talking about for a long time dividend payouts,
set another record in the second quarter, a reassuring sign to
investors, who have flocked to steady income generating stocks
during the market downturn. This year, this is what I like
to see. Come But he's generating more
income returning that back to the shareholders.
It's such a great relationship to have with a company and this
isn't something unusual. They say, annual dividend
payouts have notched new highs every year for a decade.
If you exclude, the one slight decrease in 2020.
I feel like for this entire year, most of us have heard only
negative news. So let me highlight some
positive news. Here payments this year, are
projected to grow at a faster Pace than usual.
As companies have logged strong sales and are passing on a
slice. Of the elevated profits to
shareholders. Yes.
To meet a dividend payments, will jump more than 10% in 2022
from last year's record. 511 billion, which would Mark the
first double-digit increase since 2014 isn't that such a
huge contrast from all the negative news that we hear these
companies are profitable, they're generating more,
operating income, the returning, a record amount since 2014
increase in dividends more than 10 percent.
That means that your dividend income if you're Your dividend
income investor is outpacing inflation.
You still should be making money on top of the record.
High eight percent inflation. That's a lot better than a
savings account. That's a lot better than
treasury bonds. That's better than basically any
other way to get growing passive income.
They say business is want to send a message to investors that
they're in good health. The dividend is the way they
send that message. Quote, if they can maintain
their dividend and grow their dividends despite the challenges
that tends to signal that they're confident about their
business out. So this is the way they signal
to the market and they show investors things.
What their actual business are going just fine, the broader
Equity Market has struggled this year amid, the challenge in
crosscurrents, but dividend stocks have seen a Resurgence in
2022. As investors seek a regular
stream of cash to weather the economic turmoil during easy
mode. When the FED is on your side.
When the FED is getting rid of all of the problems in the
market, giving an endless stream of money to bad companies, that
lose money on a consistent basis when cap Little is very cheap.
Then investors start to take on excess amounts of risk, they
want to get easy money and easy returns.
So they Venture off in the free cash flow.
Negative companies, they Venture off into companies have very
unproven business models. They tell stories about how
these companies will revolutionize and change the
world. Then when things start to go
south when the economy starts to slow down or run into any issue,
investors run away from those Investments aggressively and
they seek shelter in companies that generate real profits and
return. Those It's the shareholder.
This is the cycle that I've seen happened numerous times.
And I think it's safe to say that in most cases investors
would make more money. If they just stuck the companies
that can weather harsh storms, companies that generate
consistent, meaningful profits. These are good companies to
invest in, for a long period of time.
The companies that have the grandiose Stories, the
companies, I don't have any business model, those are ones
that you probably should avoid. And if anything they're
short-term trades, if you have that mentality, the out
performance of dividend stocks. Highlights the market rotation
of 2022 for the past decade. Mega Cap Technology, shares and
stocks with high valuations, led the Major indices higher this
year, the rising rates and hot inflation.
Turn the market upside down with investors, ditching high-flying
companies for Overlook stocks like dividend payers, that offer
greater stability. And I would add in this
sentence, the ditching, high-flying companies means that
investors in many cases, got burnt and they got burnt badly
and now they're just King to not get burnt.
Again, dividend payers typically provide that you're not going to
get the most excessive Returns on a one year basis.
But what you will get is far less volatility and more
consistent returns. Dividends finished the first
half as the only investment factor with a positive return.
So, during harsh market conditions, these are the only
companies doing well, they're profitable, they're making
money, they're paying dividends and a rising rate environment,
that's very effective. Of course, that's effective, but
that's not just effective in a rising rate environment.
Eric Didn't this is effective all the time.
This type of investing works all the time, not just in Rising
rate environment for lower rate environments.
These companies will give you returns around the clock.
Now, every time I bring up dividend investing, someone will
inevitably bring up share BuyBacks as the better
alternative to divot investing, it's the same thing as dividends
essentially the company's reinvesting, the money, but it
doesn't have any of the friction or the tax consequences that
dividends have. That's what people profess.
But when they say that they're emitting something, Probably
important data that differentiates dividend
investing from share buyback. Investing companies are also
using their catch to repurchase their own shares at record
levels. That's BuyBacks with the second
quarter by back expected to set fresh highs of 286 billion
dollars, according to the S&P, Dow, Jones, indices.
So BuyBacks are also reaching a record high.
So again, you could say Joseph, don't you prefer BuyBacks over
dividends? I do not.
And here's why corporations tend to favor BuyBacks over dividends
because share Prices typically respond more immediately to
repurchase programs but the ratio of BuyBacks to dividends
which is currently higher than the historical average should
come back down as the year goes on and the effect of the tough
economic environment increasingly ways on companies.
So, even though right now we're in record by backs, they're
predicting that by the end of this year.
Share buyback, programs will decrease, they won't increase
for dividend programs. They're predicting that they
will increase not decrease, This highlights, the fundamental
difference between BuyBacks and dividends BuyBacks are far.
Less Dependable than dividends and BuyBacks are done at the
worst possible time in most cases.
So although I do look at BuyBacks and I do welcome them I
don't put them in the same category as dividends.
I don't consider a buyback. A tax-free dividend, they are
different in the way companies. Treat them with their Capital.
Allocation policies is completely different quote.
If companies want to pull back, it'll be towards those BuyBacks,
they're not going to To pull their dividends Dividends are
the last thing that you cut. You don't want to tell the whole
world. You have a cash flow problem so
companies can nonchalant anytime cancel their buyback program and
for most of the time, investors shrug, their shoulders and keep
investing, but cutting your dividend program is really
signaling to the market that you have other issues with cash
flow. You're really needing to
preserve cash. For some reason because you
can't support your dividend, they signal two very different
things to the market. And again, they shouldn't be
treated the same because they're not Run in the same manner.
This is the BuyBacks from the S&P 500, every single quarter.
So you can see how volatile it is in 2006, BuyBacks reached an
all-time high then during the recession they went down
dramatically then they kind of climb back up very volatile but
they did climb and now they're reaching a record high.
So investors can celebrate the BuyBacks but notice how volatile
every single quarter is you don't know whether or not next
quarter is going to be higher or lower.
Compare this to the chart of dividends on a quarterly basis.
And then tell me that companies treat these the same way that
they're the same thing that they have the same use in the same
implications. They do not.
The Dividends are far less volatile.
They barely fell in 2009 and in 2020.
It was a minor fall that quickly recovered from
quarter-over-quarter. They steadily increase over time
without any of the volatility that BuyBacks have.
So I like BuyBacks and if they were as Dependable as dividends
and they really were consistently growing over time
with less volatility than I would have a preference for
BuyBacks / div Unfortunately, that's not the case.
That's not what the data shows. So as of right now, my
preference remains for dividends and BuyBacks is a secondary
preference, but in my portfolio overall, I'm looking for highly
durable companies that can weather any storm produced free
cash flow on a consistent basis. And they can return that to the
shareholder via dividends or BuyBacks that typically grow
over time one of the companies in my portfolio that you might
know by now that I kind of like this company just a little bit
I've made. A couple videos on the company,
one of them talking about it being the best business model
ever and then the other one I think I said something like it's
the best company in the world, something like that.
But anyways I kind of like Costco a little bit and not even
joking. This is really what I consider
to be. Maybe the best company in the
world in terms of how it treats communities shareholders,
customers across the board, how it runs its company the capital
allocation they never carry excess debt.
And at the same time at compounds at a far greater rate
than the rest of the market and one of Interesting pieces of
data that you learn about Costco is that they've never raised the
price of their one dollar and fifty cent hotdogs and drink
combo. This is not some tiny hot dog,
like this is a this is a good hot dog with the soda combined
with it with the free refill for a buck 50.
They could easily charge three, four, five dollars for this and
nobody would blink, nobody would really care.
That would be consistent with the rest of the pricing, the
world's doing right now, they're charging probably less than half
of What this would be in a fair market?
They're the only thing really fighting inflation.
Costco's, hot dog and drink combo is the one thing that
hasn't gone up dramatically and value.
Here's the CEO of Costco answering a question about when
they're eventually going to raise the prices of this hot dog
and drink combo. Craig, you must be tired at this
point answering questions about food court.
But you did tweak some prices on some items on the menu which
inevitably leads to speculation about the hot dog.
Combo is there. Any inflationary environment?
Where you would raise that price?
No, he just says no, he's not racing.
It and this is the attitude. That Costco has I love this
company. I love the CEO.
I like the way that he thinks about the business.
They are so long term, Focus. Any other company would want to
make quick marginal gains by raising the prices of every
items to get more money out of the customer right away.
Costco's the Exact opposite. Everything they do is with an
incredibly long term, Focus. So, Costco's one of those
companies I plan on having in my portfolio for the next decade.
Plus I really think I'll have this one for a long time.
I've already had it my portfolio for three years so I think I can
do at least another seven with this company plus much longer.
This would be one that I wouldn't mind retiring with
while owning literally going into my 60s and 70s.
Owning this stock companies I can buy into now a known them
for life. One company that I've been doing
analysis on is the owner of Arm & Hammer.
Which is Church & Dwight and I want to share with you some of
the things I found about this company because it's pretty
incredible. First of all, I know what you're
thinking Church & Dwight, this is a consumer staple company.
How boring? This is going to be the most
boring analysis. I promise you, it won't be.
And usually in investing, boring is good boring companies, do
well. Exciting companies that attract
a lot of attention of investors are usually bid up to
incredibly. High valuations and have lower
returns over time. I'm the companies like Church &
Dwight, the companies like Costco that rarely ever make.
The news typically are the best Compounders in the market over
Decades of time. So having said that, let's go
ahead and jump into it. Now before we jump into the
fundamentals, I first want to highlight the performance of
this company. The performance of Church &
Dwight stock just to highlight how incredibly ridiculously good
it is, this is one of the best performing companies that I've
come across while scanning a lot of different stocks.
I've been doing analysis on a lot of them in this one really
struck me. As a good performing company
Church & Dwight over the past four years, has outperformed,
the S&P 500 with a 16%, kegger compound annual growth rate,
compared to nine point eight seven percent for the S&P 500.
So 16 percent verse nine, point eight percent.
It's about double the returns of the S&P. 500 over, just the past
four years. Let's not cherry pick data
points here, let's go out a little bit further to 2010
Church & Dwight has outperformed the broader Market with a 17.3%.
Lb annual growth rate compared to the S&P 500's very impressive
12.3. So it again, outperform to a
large extent. Let's go out quite a bit further
than that. Double the timeline to 2002.
This gives the S&P 500, the benefit of the doubt because
this is after the market crashed in 2000, which Church & Dwight
did not crash nearly as much as the rest of the market.
So, I'm actually doing the rest of the market, a favor here and
starting in 2002 instead of 1998.
Even so Church & Dwight has outperformed the broader Market
since 2002 by returning 17.3 percent per year, while the S&P
500 is returned. 8% 17% verse eight percent compound annual
growth this, both beat the S&P 500 and the QQQ over this
timeline and it did. So as a boring company with low
volatility, that had a Max drawdown, a maximum drawdown of
21 percent in And nine, while the S&P 500 went down roughly
50%. So it not only doubled, the
compound annual growth rate of spy, but it did so with
dramatically less volatility and lower draw Downs.
So I'm sifting and doing research on dozens of companies
and I come across one like this. I want to find out what's
generating this outperformance. How does a company double?
The S&P 500's returns with the lower volatility and let's draw
Downs for over 20 years and is still doing it to present day.
That's something that really intrigues me.
So let's go. Don't look at some of the
fundamentals of this company. That's driving it dramatic
outperformance. This is going to be using a
website called quatrain insights.
This is something that I developed as part of the patreon
so that you can look at the fundamentals of a company, in a
very easy to understand. Visual way it displays all the
important fundamentals in seconds.
The first chart that I typically look at is a top-line, revenue,
growth of the company. Obviously, you can see the
company's grown, its Revenue, all the way back from 1985, and
it's done it on a pretty consistent basis.
Maybe five to ten percent Percent per year and it
accelerated a little bit over the past couple of years.
So that might be a pandemic situation, A covert situation,
I'm not sure but we can easily see there's a good trend of
Revenue acceleration last year. They generated 5.1 billion
dollars in Revenue. So they're generating 5.1
billion in revenue and then last year they also generated 1.3
billion dollars of ibadah. So you can kind of get an idea
of how much of their revenue gets transferred to eat better
there and the ibadah trans looks.
We similar, they grow the revenue, they grow their ibadah.
Now, the next important metric that I look at is the free cash
flow. You can see since 2002, it's
been consistently positive and now they're generating around
875 million dollars of free cash flow per year as pretty good for
a company that's doing five billion dollars in revenues.
They're converting around 20% of that into free cash flow.
If we look at this on a per share basis, which factors in
dilution, they're growing it at an accelerated pace, which means
they're doing, share, BuyBacks over this time.
So you can see the Free cash flow per share, go up and up,
and up, over time, which means for every share you buy of this
company, the free cash flow on that share is increasing their
net. Income is a next important
thing. We would look at it follows the
exact same Trend, it's almost always positive and one thing to
note is the actually generate more free cash flow.
The net income, the earnings per share of the company as you
would suspect are going up over time.
They had a dramatic increase in 2020 and 2021.
Now, if we look at the balance sheet hair, this is important to
look at for any company they have taken on more debt.
So if I just filter by the debt only, You can see the spike
around 2017. My guess is, they didn't just
decide to spend on something useless, but they actually did a
merger or acquisition. They actually purchased another
company and raised a couple billion dollars in debt.
That would be my initial assumption on this and now,
they're probably working to pay back down that debt over time.
So, with whatever they purchase, they had two point 1 billion
dollars in debt. Now, they have 1.6 billion which
is a very good Trend seeing The Deco down after time, especially
after an Ian is something you want to see if we factor in the
cache at the same time, they currently have a hundred and
seventy four million dollars in cash.
Now, I don't typically compare the debt to cash because that's
not really how companies operate.
They use cash to fund their current operations.
They use debt as leverage to be able to do Acquisitions and
purchases and the debts typically paid off with cash
flows, not existing cash. So while they have 1.6 billion
dollars in debt last year remember they made one point
three billion dollars in ibadah Their debt is not even one
year's worth of ibadah. Meaning they could pay off this
debt within a year. It is not a big deal at all.
Now obviously we're looking for good dividend payers here.
This company is a very good dividend payer.
I don't know what happened in 1989, they lowered the dividend.
That's so long ago that I'm really not too concerned about
it. I want to look at the semi
recent history of the company. They started accelerating their
dividend around 2009 after the recession and you can see these
gargantuan leaps and dividend payments.
This is a very impressive did In history, since 2009, they were
paying a to Penny dividend, two, pennies per quarter.
Now, they're paying 26 Cents. So if you had bought this
company 2009, your dividend payment would have increased by
13 times and even since 2015, they've increased by roughly
70%. So this is a company that likes
to increase their dividend over time and this is certainly
because they're generating more cash flows, they have room to
pay this dividend, it has a lower starting yield of 1.1
percent but the payout ratio is very low at 31% for Staple.
And the dividend growth has grown very consistently sought.
Expect this company to continue growing, its dividend at a very
good Pace known. As we saw what the free cash
flow per share growing over time.
Faster than the cash flows. That typically means the
company's doing share BuyBacks, which you can see here since
2009. They've also bought back a lot
of their stock. Reducing it from 287 million
shares outstanding to 244. It looks like recently over the
past couple of years. They haven't been doing BuyBacks
as aggressively, but instead of been focusing on increasing
their dividend, which I'm fine with.
Either way, the returning money's good, I don't have any
problem with them doing that. Now, another thing that we can
look at what this company is the margins of the company.
The profit margins, for example, have been increasing over time.
Generally speaking quarter by quarter, the average profit
margin is up to around 16%. So, this is what we want to see
what the company. Margins going up, not going
down. This means that they have either
better pricing power, they can raise prices, maybe they're
doing more Sales Online, maybe they have more.
Efficiency with their Logistics. Whatever they're doing, they're
making more money with the revenue.
They're getting basically every metric I look at across the
board is moving in the right direction and it makes sense.
Why these fundamentals would Propel this company to have
long-term outperformance, but what does this company doing
qualitatively to be able to grow?
Like this really, what is Church & Dwight doing to make this
happen? We look at their brands and
products. There is nothing exciting about
this. These are the products that led
to 17 percent annualized returns for the Past 20 years beating
both the Q and the S&P 500, a bunch of name brands that sit
and grocery stores. That you wouldn't glance twice
at Arm & Hammer Waterpik, you have home care products,
personal care products, OxiClean and extra.
This is boring stuff, they're not revolutionising.
The world are using machine learning or Reinventing health
care. They're simply selling a bunch
of boring name. Brand products that everyone
uses now, it's boring and uninspiring, as many of those
products are they've led to this great out.
Foreman's in combination of the executive team in the management
of this company. They have what they call, their
Evergreen model. Our long-term mission is to
maintain a track record of delivering outstanding.
TSR total. Shareholder returns are
long-term plan for delivering Superior.
Returns is based on what we call our quote, Evergreen business
model 3%, annual organic Revenue growth.
So three percent Revenue growth on the stuff they already own.
That's non acquisition. Non merger growth.
Now that's a low amount of growth but that 3% is helpful in
their total returns. Look at how they leverage that
organic growth to get Superior total returns.
So we have that 3%, annual organic Revenue growth and eight
percent annual increase in earnings per share.
So now they're saying, they want three percent, organic Revenue
growth. Eight percent earnings per share
growth. That seems very reasonable to
me. Now, they say the 3%, annual
organic Revenue. Growth is driven in the US by
two percent year-over-year and international by 6%.
So the mixture between International in the US with the
international growing faster. The u.s. growing slower equates
to that three percent Revenue growth, then our Specialty
Products five percent. So they also have Specialty
Products that they've moved into their going to see five percent
Revenue growth from those. Now the eight percent earnings
per share growth is driven by a 25 basis, point gross margin
expansion and a 25 basis point reduction of overhead costs.
Resulting in operating margin improvements of 50 basis points.
This is a lot of technical ways. Of saying that they're going to
increase their margins and lower their overhead, which further
increases their profitability achievement of our Evergreen
model. Influences, both are short-term
and long-term decisions, making a promoting financial literacy
inside. Our company, it is an important
part of our success. So I really like that.
They have this very nuanced and transparent model of how to
achieve these returns. They don't just say that they're
going to have great you know a great company that's going to do
great things and give really broad general terms.
Big of specifics 3%, annual organic Revenue growth.
Eight percent increase in earnings per share driven by all
these different factors which include sales growth and
marginal improvements. That is a specific framework for
this company to achieve their goals and they even break down
the specific factors that will lead to their long-term success
and which have done. So in the past number one, a
diversified product portfolio. This is something that I
actually prefer about Church & Dwight over some of the current
Holdings that I have. When I look at this, I see me.
Many brands that generate a lot of Revenue across the board.
When I look at a company, like Nike, I don't see as much
diversification. Even though Nikes a great brand,
everything is reliant on that one brand name.
They really aren't Diversified in the same way that a company
like Church & Dwight is to. They have very powerful brands
with substantial pricing power while we sell over 80 Brands 14
of the Brand's generate over 80 percent of our revenues and
profits. The 14 brands are Brands,
consumers, love and consequently are Market leaders.
Connect with consumers, through execution of Creative Marketing,
innovating new products and sustaining marketing spending
resulting in high market, share for Our Brands.
So they have that long-term vision of continually keeping
their Market position. The company still has growth
ahead internationally. They're Evergreen model their
framework for growing, their business calls.
For a consumer, international business to grow Revenue, 6%
annually today, 18 percent of our sales are international and
growing rapidly in 2021. We posted organic growth of 5%
below. Evergreen model is 6% but
lapping 8.6 percent growth in 2020. 2021 represented strong
performance in the face of inflation.
Widespread Global Supply Chain, disruptions impacts from
covid-19, and weather-related events are Global Market group,
grew almost 11 percent, and now represents 35% of our
international business. We have fully operational
subsidiaries and six countries, the UK France, Germany Canada,
Mexico and Australia, and Export to over 130 countries.
So they're doing a big push. And I think they see this as a
major growth path ahead. I would assume most of the
growth in the u.s. is simply by raising prices and they're
already an 86 percent of households in the US.
The next one, they mention here, I think is a significant growth
path which is animal nutrition. Now, they're not talking, I
think mostly about pets like cats and dogs.
Actually think they're talking about animals that we eat for
protein. And I know that there's a
popular Trend to say that that's all going away.
And nobody's going to become vegan and eat these fake meat
burgers and and vegan foods. And while I think that's a good
Movement, we probably should for health eat less animal protein.
Overall, I don't think it's going away and I think that's
going to be a growing Market over time Church & Dwight thinks
so too. They say we expect our specialty
product business to grow revenues 5% annually.
Driven by your animal and food production business, the global
population is expected to rise from 7.7 billion today. 29.7
billion in 2050, the demand for protein will increase with
population growth at the same time.
There's a trend away from the use of antibiotics hormones and
chemicals in animal nutrition. Our portfolio for natural
supplements, prebiotics and custom probiotics for dairy
cows, poultry cattle and Swine are well, positioned for This
Global growth in 2015, Dairy represented 99% of animal
productivity business, which is cyclical.
Our focus on non dairy business. Now 24% has created a better
balance, considering the population Tailwinds and the
strength of our products we have strong confidence in the
long-term growth DCL, smart. What they're doing here is in
2015, they had most of this category of animal nutrition
which is just one category in their business but the issue was
it was cyclical and their consumer staple business.
They don't like to be cyclical. They like to be non cyclical way
trainings. Their business goes a long.
No matter what's happening in any environment.
Now they're non dairy. Business is 24 percent so
they're diversifying even a subcategory of their business to
have more consistent revenue and consistent profits.
This is something that I think is incredibly smart from the
management team. Now before I move on to the next
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The next thing that they highlight is their growth in
online sales. They say their long-term success
requires them to be digitally Savvy.
One of the important Measures of digital skills is online sales.
I mentioned earlier, looking at their margins increasing that
some of that is probably due to online sales.
They say in 2015, only one percent of our sales were online
and 2021 approximately 15% of our Global sales were online,
excluding click and collect, which is online ordering and
picking up in stores. So just their pure online sales
have grown from 1% to 15% from 2015.
Now they go on expressing, how they're A digitally dumb
company. They might look like a consumer
staple company, but they do have tech savvy and they are
increasing their market share in the online world.
The cost structure is important. Of course, for every company
they highlight how they're putting a focus on their gross
margins to improve cost structure.
Number seven, they say grow through Acquisitions Church &
Dwight has a long history of successfully acquiring
businesses over the past 20 years.
They acquired 13 of our 14 current power Brands.
So this company grows through Acquisitions 13.
They're 14 are through Power Brands, there's nothing wrong
with that. They do have some organic growth
but they really grown their brand strength through
Acquisitions to illustrate our long term acquisition mindset.
We like to say, quote 14 power Brands today, 20 tomorrow, we
possess a competency and targeting acquiring an
integrating Brands and businesses in a world where
seven out of ten Acquisitions. Do not create value.
We have a superior track record and making a Creed of
Acquisitions. We are disciplined and adhering
to clear. Acquisition guidelines, we
quickly integrate Acquisitions to leverage our existing Capital
base and Manufacturing Logistics purchasing an other back office
functions. Number eight, they say,
best-in-class free cash flow conversion, free cash flow
conversion is the rate of how much of their net income goes in
the free cash flow. If a company has a lot of net
income but not a lot of free cash flow, their free cash flow.
Conversion rate is very low. They say in 2021 our free cash
flow cash from operations - capex was a 875 million.
That's what we saw in qualtrics on the cash flow chart with a
free cash flow conversion rate of 116 percent.
That's what I mentioned while looking at qual trim with them
having more free cash flow than they had net income.
And that's a way of saying this company.
Generates true prophets, they generate real cash number nine.
They say they have Superior overhead management maintaining
tight controls on selling General.
And administrative has been a Hallmark of Church & Dwight.
This is something that we can look at as well to see if they
really are keeping control over their expenses.
On courtroom there's a tab called expenses which pulls up
the general expenses. A company has capex which is the
spending on hard Goods like locations trucks uniforms, that
type of thing. Then you have a yellow hair
orange the sales and marketing and read you have General and
administrative which is the overhead of the company you have
accountants and lawyers and administrators in general
administrative. And then until here you have
research and development, which it doesn't pull it up for this
company but you can see what they're saying on the general
and administrative here, if we Sir by just that they spent six
hundred and six million dollars on General administrative.
But this hasn't been growing at as fast of a rate as other
companies. So they're trying to control
this expense. This overhead rate is one of the
lowest in the consumer product. Good space.
We believe we have the highest revenue per employee of any
major consumer product goods. Company 1 million dollars per
employee a measure productivity, that is often overlooked.
So they're talking pretty boldly.
You know, they're really selling themselves here.
This is for investors. They're bragging a little bit
saying how Nimble they are how much revenue they generate per
employee. They have crushed the market for
the past 20 years. So the management team has every
reason to show off what they're doing and how it's working.
The last thing they mention is there simple incentive
compensation at Church & Dwight, we embrace the power of
Simplicity. This is evident in our simple
incentive compensation plan. Our bonuses are tied.
Directly to four equally weighted drivers of total
shareholder returns, net sales, growth growth.
Margin expansion, earnings per share growth and operating cash
flow. So there's no way for the
management team to really game the company at the expense of
the shareholder. I really like the way that they
laid out this compensation package, they say our Equity
compensation consist predominantly a stock options
that are valuable only when the value of your investment Rises
and our senior management team is required, to maintain a
significant investment in our stock to be closely.
Aligned with, you are stockholder.
In my opinion, a very good incentive structure for the
company. So, Do analysis on this company
and look over everything. I can see, I really liked it.
I would want this company to be in my portfolio, it checks all
the boxes that I look for the issue right now is the valuation
the PE ratio on a trailing basis is 29 on afford bases, its 29,
that's well, above the S&P 500. So you are paying a premium if
the own this company right now, the problem with this type of
company, these Consumer Staples that are highly profitable.
Free cash flow generative grow over time.
Time with low volatility is it's difficult to buy them on a
significant dip. It's difficult to wait and by
this company cheaper and if you wait too long, it'll probably
get more expensive over the past five years, it's traded down a
little bit. I could probably get it in the
low 80s. Maybe the drops down below 20,
20 levels to $60, a share that was during the complete worst,
part of the pandemic at 60 and then back in 2017, it was at 48
dollars a share but they've done many acquisition sense.
And they've grown their free cash flow since then.
So I don't really see this company going back down to $50 a
share. I really think it's going to be
difficult to get anywhere below eighty dollars a share.
So I will be adding this one to my watch list which is a dip
finder. I'll be looking at it from time
to time and I may look at entering a position at some
point in the future. If one of my other current
Holdings isn't performing well, or I think this one's a better
opportunity given the current price.
So I'll look if there's any type of dips or opportunities to buy
into this company, but as of right now, Now, I think it's a
great company. That's going to stay on the
watch list. So that's all for now.
I hope you enjoyed this episode. I'll have more analysis on
different companies that I'm looking at buying, but I think
now is the time to really start buying into these companies.
In my opinion, the market has come down a lot companies that
used to be very expensive are now cheaper.
The market could drop further, like, all the analysts are
warning, the second half of this year, but we don't know that for
sure. What we do know is that prices
now are much cheaper than they used to be.
So that's all for now. I'll see you in the next one.