Church & Dwight (NYSE: CHD) might not exactly be a household name, but you've likely heard of many of the company's brands: ARM & HAMMER, Trojan, First Response, Nair, Spinbrush, OxiClean, Orajel, Vitafusion, WaterPik and ZICAM.
If you already know some of the company's powerhouse brands, you might be inching closer to considering a serious investment. Let's take a look into the background of Church & Dwight, what to know before you invest (including reasons to consider the company and reasons you may want to steer clear of it) and whether the company makes sense for your specific investing needs. Let's get started.
About Church & Dwight Co. Inc.
Church & Dwight Co. Inc., a manufacturer of household products and headquartered in Ewing, New Jersey, is best known for ARM & HAMMER baking soda and the wide variety of products that have spun off that line, including laundry detergent and toothpaste.
The company began in the mid-1800s. In 1846, Dr. Austin Church and John Dwight, brothers-in-law, released bicarbonate of soda (baking soda) for commercial distribution, known today as ARM & HAMMER. Their first factory started in Dwight's kitchen and was packaged in paper bags.
In the 1980s and 1990s, ARM & HAMMER launched the first detergent with baking soda, both powder and liquid laundry detergents and later spun off toothpaste, carpet deodorizer and cat litter.
In the early 2000s, Church & Dwight acquired Carter Wallace’s consumer business, which included personal care brands Trojan, First Response, Nair and Arrid.
In 2006, the company expanded its household brand portfolio when it acquired Orange Glo International and OxiClean, Kaboom bathroom cleaners and Orange Glo household cleaning products. It also bought Orajel in 2008, Batiste Dry Shampoo in 2010 and Simply Saline, a nasal hygiene brand. It also acquired Feline Pine, a cat litter brand.
The company also acquired Agro BioSciences in 2017 and Microbial Terroir, a platform of proprietary microbial solutions and bought Water Pik Inc. In 2019, it acquired Flawless, which offers an array of electric hair removal products.
In Q1 2022, net sales grew 4.7% to $1,297.2 million. Organic sales grew 2.7% and pricing grew 7.8%, offsetting a volume decline of -5.1% due to supply chain disruption and pricing elasticities. Q1 2022 EPS was $0.83, which declined 5.7% compared to 2021.
Reasons to Consider Investing in Church & Dwight Stock
Why might you want to buy Church & Dwight stock? Let's take a look:
- Strong consumer demand: The company continues to experience strong consumer demand due to its seemingly indestructible (or at least, recession-proof) portfolio due to its well-cultivated brands. One of the reasons it succeeds is its ability to bring value to consumers, including offering laundry detergent brands at a massive discount compared to Procter & Gamble's brands, for example. When people are looking for a cheaper alternative, Church & Dwight can fill that need.
- Consistent dividend increases: Church & Dwight has a 1.13% dividend yield, an annual dividend of $1.05, a dividend payout ratio of 32.21% and has offered a consistent dividend increase for the past 27 years. Church & Dwight pays out 32.2% of its earnings in the form of a dividend, which indicates a healthy payout ratio. The company has no trouble covering its dividend payments and would be able to on an ongoing basis. The company also has strong institutional ownership of its stock.
- Cash flow: As cash flows are important when assessing a dividend, Church & Dwight's free cash flow margins have consistently risen over the past decade. The company's average free cash flow margin is 16.4% and the five-year average stits at 17.4%.
- Listens to consumers: Church & Dwight has put an intent focus on four main brands: ARM & HAMMER, OxiClean, Trojan and vitamins (primarily for kids, including Vitafusion and Lil' Critters). During the pandemic, consumers formed new lockdown habits, such as the need to feel presentable for Zoom calls and other at-home solutions (encouraging the use of dry shampoo, waxing and hair removal at home and at-home beauty regimens).
Learn more: Best Growth and Dividend Stocks
Reasons to Steer Clear of Church & Dwight Stock
Why might you want to be a little wary before investing in Church & Dwight?
- Underperformance compared to competitors: Recently, the stock has underperformed compared to certain competitors, such as Johnson & Johnson, Procter & Gamble Co. and Reckitt Benckiser Group PLC.
- Not the strongest around: It's always possible to find someone bigger, faster and stronger, and dividend payers are no exception. For example, Mondelez International boasts higher revenue and earnings in comparison and also has a lower price-to-earnings ratio, indicating that between the two companies, Mondelez is more affordable.
Learn more: Are Dividend Stocks Worth It?
Should You Consider Church & Dwight Co. Inc.?
As a dividend investor, you're likely looking for a wide variety of factors beyond just the dividend returns. You're looking at earnings, the company's history, stock price, market size, management and more. You're also calculating the dividend yield based on the share price and the dividend payout ratio. You likely want to put companies with a long history of financial stability and low volatility in your basket.
Church & Dwight's earnings per share have continued rising and the company has kept its earnings close to its chest (that is, within the business). Its dividend growth has also continued growing rapidly over the past few years and its low payout ratio suggests a sustainable approach to handling its dividends, all positives.
It's important to consider all avenues of the company as well as how well it will fit into your portfolio. Is the company going to offer you the best match for your current and future goals? Only you can decide whether this company is a match for your overall portfolio. It's true that Church & Dwight does offer a solid earnings history and balance sheet, management profile, dividend yield and earnings per share, among other perks, but it also requires you to examine the broader implications of adding the stock to your already existing portfolio.
Learn more: 11 Dividend Stocks with High Yields