You gotta love America—in this country, can you get rich by buying blocks of stock in a dish soap and toothpaste manufacturer, hold it for a long time and go about your life, reinvest the dividends, and get rich.
Check out this image of what would have happened if you bought $10,000 worth of Colgate-Palmolive stock twenty years ago, checked the reinvest button on your brokerage account (err…instructed your broker to reinvest the dividends back then), and let the wealth compound over time:
How is it that a company as seemingly boring as a dishsoap and toothpaste manufacturer is able to turn every $1 you invested in 1993 into $15 in 2013 just by executing a buy-and-hold strategy?
The key to blue-chip investing is this: when you are dealing with a high-quality company, there are rarely any material setbacks in profits. In the case of Colgate-Palmolive, the profits have increased in 18 of the past 20 years. The dividend has gone up every year for the past fifty plus, and the company hasn’t missed a dividend payment since the late 1800s.
Why does Colgate have this kind of consistency? Because the parent company owns dozens and dozens of little cash generators that can pump out profits for you as the part owner, even if the broad economy is performing poorly.
When you receive a Colgate dividend, you are receiving profit from Colgate toothpaste. You are receive profit from Irish Spring soap. Heck, you are receiving profit from Softsoap soaps. You are receiving profits from Hill’s pet food brands. You are receiving profit from Mennen shaving cream. You are receiving profit from Palmolive cleansers. You are receiving profits from Ajax, Fab, and Murphy. You are receiving profit from Speedstick deodorant. The company sells these products profitably in over 100 countries. This is exactly the kind of company you buy-and-hold for the rest of your life.
The fun thing about owning a company Colgate Palmolive is that you can actually see the intrinsic value increase before your eyes. Since I have been alive, Colgate has never gone twenty-four months without increasing profits. Think about what has happened in the past 20+ years—we’ve seen wars, attacks on American soil, escalating deficits, rising unemployment, global catastrophes, and so on, but Colgate’s profits keep chugging along. It turns out that people keep brushing their teeth and cleaning their house, no matter what the economy is doing. There are only 30-50 stocks out there you can hold the rest of your life without thinking about. Colgate-Palmolive is one of them. When you get your hands on a company like Colgate, don’t let it go.