Church & Dwight Inc (NYSE:CHD) sheds 5.9% this week as annual returns more in line with earnings growth

Stock pickers generally look for stocks that will outperform the market as a whole. And while active stock picking involves risk (and requires diversification), it can also provide excess returns. For example, long term Church & Dwight Co., Inc. (NYSE:CHD) Shareholders have enjoyed a 76% rise in share price over the past five years, well above the market return of around 60% (excluding dividends). On the other hand, the most recent gains have not been so impressive, with shareholders gaining only 4.7% including dividends.

Although the past week hurt the company’s five-year performance, let’s take a look at recent trends in underlying activity and see if the gains have been aligned.

To quote Buffett, “Ships will circumnavigate the globe, but the Flat Earth Society will prosper. There will continue to be wide gaps between price and value in the market…’ An imperfect but reasonable way to gauge how sentiment around a company has changed is to compare earnings per share (EPS) with the stock price.

In five years of share price growth, Church & Dwight has achieved compound earnings per share (EPS) growth of 13% per year. Thus, the EPS growth rate is quite close to the annualized stock price gain of 12% per year. This indicates that investor sentiment towards the company has not changed much. Indeed, it would seem that the share price reacts to BPA.

The image below shows how EPS has tracked over time (if you click on the image you can see more details).

NYSE: CHD Earnings per share Growth August 2, 2022

It might be interesting to take a look at our free Church & Dwight earnings, revenue and cash flow report.

What about dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price performance. TSR is a calculation of return that takes into account the value of cash dividends (assuming any dividends received have been reinvested) and the calculated value of all discounted capital raisings and spinoffs. It’s fair to say that the TSR gives a more complete picture of stocks that pay a dividend. Note that for Church & Dwight the TSR over the past 5 years was 88%, which is better than the stock price return mentioned above. This is largely the result of its dividend payments!

A different perspective

We are pleased to report that Church & Dwight shareholders received a 4.7% year-over-year total shareholder return. Of course, this includes the dividend. That said, the five-year TSR of 13% per year is even better. The pessimistic view would be that the stock has its best days behind it, but on the other hand, the price could simply moderate while the business itself continues to operate. I find it very interesting to look at stock price over the long term as a proxy for company performance. But to really get insight, we also need to consider other information. Take for example the ubiquitous specter of investment risk. We have identified 1 warning sign with Church & Dwight and understanding them should be part of your investment process.

Sure, you might find a fantastic investment by looking elsewhere. So take a look at this free list of companies that we believe will increase their profits.

Please note that the market returns quoted in this article reflect the average market-weighted returns of stocks currently trading on US exchanges.

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Jerry B. Hatch