Dividend Aristocrats In Focus: The Clorox Company

Up to date on February twenty eighth, 2024

Client staples shares are a few of the most dependable dividend payers within the inventory market. Individuals want staples merchandise for his or her day by day lives, which offers a sure stage of demand from yr to yr.

Demand for on a regular basis merchandise stays regular, even throughout recessions, which makes it an interesting business for buyers on the lookout for constant dividends.

That is why there are a number of shopper staples shares on the Dividend Aristocrats record, which incorporates 68 firms within the S&P 500 Index, with 25+ consecutive years of dividend will increase.

You possibly can obtain an Excel spreadsheet of all 68 Dividend Aristocrats (with metrics that matter akin to dividend yields and price-to-earnings ratios) by clicking the hyperlink beneath:

Disclaimer: Positive Dividend just isn’t affiliated with S&P International in any approach. S&P International owns and maintains The Dividend Aristocrats Index. The data on this article and downloadable spreadsheet relies on Positive Dividend’s personal overview, abstract, and evaluation of the S&P 500 Dividend Aristocrats ETF (NOBL) and different sources, and is supposed to assist particular person buyers higher perceive this ETF and the index upon which it’s primarily based. Not one of the info on this article or spreadsheet is official knowledge from S&P International. Seek the advice of S&P International for official info.

Annually, we overview all Dividend Aristocrats individually. The following inventory within the sequence is The Clorox Firm (CLX). Clorox has raised its dividend for 46 years in a row.

This text will present an in-depth overview of Clorox’s enterprise mannequin, and future outlook.

Enterprise Overview

Clorox began out over 100 years in the past, with the debut of its namesake liquid bleach in 1913. Right this moment, it’s a international producer of shopper {and professional} merchandise than collectively span all kinds of makes use of and prospects. The corporate produces annual income in extra of $7 billion and it sells its merchandise in additional than 100 markets.

The corporate has a extremely various set of companies with myriad manufacturers and merchandise inside every, offering Clorox with large international scale.

The corporate’s largest phase is well being and wellness, which is a part of the core Cleansing phase. Nonetheless, Clorox is rather more than a cleaner firm because it produces meals, pet merchandise, charcoal, and all kinds of different manufacturers.

Supply: Investor Presentation

The Family phase consists of the Glad, Kingsford, Contemporary Step, and Renew Life manufacturers. Cleansing merchandise embody Clorox, Pine-Sol, and the Clorox Industrial Options companies. Way of life manufacturers embody Hidden Valley, Burt’s Bees, and Brita. Lastly, the Worldwide phase sells Clorox’s manufacturers around the globe.

Roughly 60% of its whole income comes from merchandise that maintain the #1 or #2 market share of their respective product classes.

Clorox posted second quarter earnings on February 1st, 2024, and outcomes have been higher than anticipated. Adjusted earnings-per-share of $2.16 got here in additional than double the typical estimate of $1.06. Income elevated 16% year-over-year to $1.99 billion, and beat estimates by an enormous $190 million.

Natural gross sales have been up 20% throughout the quarter, which it mentioned was as a result of favorable pricing and blend, in addition to prospects rebuilding their stock ranges. That implies the extent of gross sales progress from Q2 is probably going not repeatable.

Gross margin soared 730 foundation factors larger year-over-year to 43.5% of income, which was as a result of advantages of pricing and price saving initiatives.

Development Prospects

Wanting forward, Clorox has some levers it will probably pull to proceed its progress. The corporate is constantly innovating with product extensions on its present lineup, akin to flavors and cross-branding. It has performed these issues for a very long time and can proceed to take action with a purpose to keep aggressive.

Additionally it is focusing its mergers and acquisitions on firms which are rising, targeted within the US, and are margin-accretive. Clearly, the corporate desires to spice up home progress and margins by means of acquisitions.

Margin enlargement is one other longer-term purpose for the corporate.

Supply: Investor Presentation

Clorox sees potential in rebuilding its margins by means of pricing actions, price financial savings, and by optimizing its provide chain over the long-term.

Clorox can be taking a prudent method by shopping for firms with a greater margin profile than its current portfolio, which boosts income and margins concurrently.

Lastly, Clorox can enhance earnings-per-share with share repurchases. In all, we forecast 8% earnings-per-share progress yearly for Clorox over the subsequent 5 years.

Aggressive Benefits & Recession Efficiency

Clorox has a number of aggressive benefits. First, it holds a tremendously sturdy model portfolio. As beforehand talked about, Clorox merchandise take pleasure in excessive market share throughout the portfolio.

Clorox retains its excessive business place partially by means of promoting and it spends very closely to take care of that place. Product advertising and marketing is a necessity for shopper merchandise producers and Clorox spends ~10% of its income on this annually.

One other benefit of Clorox’s enterprise mannequin is that its merchandise are utilized by thousands and thousands of individuals every day, in good economies and dangerous. Based on the corporate, Clorox-branded merchandise are in about 9 of ten U.S. households.

There’ll at all times be a sure stage of demand for family cleansing merchandise and meals, even when the economic system enters a downturn. This enables the corporate to stay worthwhile throughout recessions. Certainly, Clorox is a robust instance of a defensive inventory. Its earnings-per-share by means of the Nice Recession are proven beneath:

2007 earnings-per-share of $3.23
2008 earnings-per-share of $3.24 (0.3% enhance)
2009 earnings-per-share of $3.81 (18% enhance)
2010 earnings-per-share of $4.24 (11% enhance)

As you may see, Clorox elevated earnings-per-share annually all through the recession, together with double-digit earnings progress in 2009 and 2010.

Clorox additionally carried out very properly throughout the coronavirus pandemic, as its merchandise noticed a lot larger demand as customers spent rather more time at dwelling. This demonstrates the corporate has a really recession-resistant enterprise mannequin and a excessive stage of security.

Valuation & Anticipated Returns

We anticipate Clorox to generate earnings-per-share of $5.50 for fiscal 2024. Primarily based on this, CLX shares commerce for a price-to-earnings ratio of 27.9. That is above our estimate of honest worth, which is 23 occasions earnings.

Because the inventory is buying and selling above honest worth, we see it as overvalued. If the P/E a number of falls from 27.9 to 23 over the subsequent 5 years, it might cut back annual returns by 3.8%.

Shareholder returns will probably be additional boosted by future earnings-per-share progress, which we estimate at 8% per yr. Lastly, Clorox’s 3.1% dividend yield will add to shareholder returns. This results in whole anticipated returns of seven.3% per yr over the subsequent 5 years.

This can be a first rate anticipated fee of return however just isn’t excessive sufficient to warrant a purchase ranking right now.

Closing Ideas

Clorox is a dependable dividend inventory. The corporate has a management place throughout its product markets, with potential for some progress. The corporate ought to be capable to proceed its four-decade lengthy streak of annual dividend raises whatever the total financial local weather. This makes it a constant dividend inventory for risk-averse earnings buyers.

Nonetheless, the inventory stays a maintain in our view, and buyers concerned with whole return potential ought to anticipate an extra pullback within the share worth.

Moreover, the next Positive Dividend databases include probably the most dependable dividend growers in our funding universe:

In case you’re on the lookout for shares with distinctive dividend traits, contemplate the next Positive Dividend databases:

The main home inventory market indices are one other strong useful resource for locating funding concepts. Positive Dividend compiles the next inventory market databases and updates them month-to-month: