Dividend Aristocrats

Clorox Stock, a 42 Year Dividend Aristocrat

Clorox Stock is a member of the elite S&P 500 Dividend Aristocrats Index. These are blue chip dividend paying stocks that have consistently raised their dividends annually for at least 25 years. They are also members of the S&P 500 Index and have a market capitalization of at least $3 billion. As of 2020, there are 64 such companies.

Clorox last raised its dividend by 10.4%, from $0.96 in February 2019 to $1.1 in May 2019. Clorox Stock has also out performed the S&P 500 over the last 10 years by rising 300% versus the S&P 500 which has risen by 150%.

In this article, we review Clorox business operations, dividend growth history, latest financial results, 2020 guidance, stock valuation and long term performance.

Table of Contents

This article is broken down in to sections, feel free to jump to the area that interests you.

Business Synopsis

Founded in 1913 in Oakland, California, The Clorox Company is a manufacturer of consumer products operating its business through 4 segments.

  1. Cleaning Products – Top brands include Pine-Sol disinfecting surface cleaner available in various flavors, Glad trash bags, Scentiva disinfecting wipes, Formula 409 degreaser disinfectants, etc.
  2. Household Products – Top brands comprise of Liquid Plumr used to unclog drains and pipe systems, Fresh Step used to eliminate cat litter odors, Renew Life digestive health probiotics,
  3. Lifestyle – Top products are Brita water filtration systems, Burt’s Bees selling skin care products like lip balms, soaps and lotions, baby care, etc. Neocell vitamin supplements also make a portion of food products within the lifestyle segment.
  4. International – 16% of Clorox’s sales come from international markets including South America, Europe, Africa and Asia.

Screenshot below shows Clorox’s revenues by each segment for 2019 with a total $6.2 billion in net sales. 34% of sales come from cleaning products, 30% from household, 20% from lifestyle and 16% from International sales.

Clorox has a huge competitive moat around its products such that they are found in 9 out of every 10 homes in the United States. Nearly 80% of the company’s products hold #1 or #2 positions in brand value.

Revenue Analysis and Share Buybacks

For full year 2019, Clorox generated $6.214 billion in net sales and earned a net income of $820 million, implying a net profit margin of 13.2%. Revenues grew 1.5% year over year from 2018’s total of $6.124 billion. Earnings per share grew 0.7%, from $6.37 per share in 2018 to $6.42 per share in 2019.

Over the last decade, Clorox has grown its revenues from $5.234 billion in 2010 to $6.214 billion in 2019. This represents a compounded annual growth rate (CAGR) of 1.7%.

Trading on the New York Stock Exchange, Clorox sports a $23.2 billion market capitalization and pays a 2.3% dividend yield. This yield is 20 basis points higer than the yield on the S&P 500 at 2.1%.

Over the last 5 years, Clorox has grown sales at a compounded annual growth rate (CAGR) of 2.4%, while earnings per share (EPS) have risen at a 7.6% CAGR clip.

Growth Outlook

In latest earnings 2nd Quarter, 2020 which ended on December 31st, 2019, Clorox reported net sales of $1.449 billion, a 1.6% decline from the same quarter in 2018. The reason for the decline was unfavorable currency exchange, however sales would be flat for the quarter if not for this reason. Diluted Earnings per Share increased by 4% year over year.

Areas of strength include gross margin expansion of 40 basis points to 44.1% from 43.7% thanks to price increases and cost savings programs offset by higher trade and promotions spending and increased transportation costs. Sales in cleaning segment were flat while household segment reported drop in sales.

Lifestyle segment reported increase in sales thanks to Burt’s Bees Lip Care products and water/filtration systems. International segment sales were down 8% thanks to negative foreign currency impact due to Argentina’s plunging currency.

Management gave guidance for full year 2020 with expectations of 1% or less increase in sales with a slight expansion of gross margin. Full year earnings per share is expected between $6.1 to $6.25 reflecting a 5% increase from 2019.

Dividend Growth History

Clorox Stock is a member of the prestigious S&P 500 Dividend Aristocrats index, having raised dividends for 42 consecutive years. This is a remarkable achievement and a feat not many companies have attained.

Clorox has grown its dividend from 18.5 cents a share in 1986 to $4.04 as of 2019. This represents a compounded annual growth rate (CAGR) of 9.8% over 33 years.

Chart attached displays the steep uptrend in Clorox’s dividend payments since 1986. Readers of this article would be hard pressed to find another company with a spectacularly steep uptrend in dividend payments like this one.

Chart displayed below also shows the year over year growth in Clorox’s dividend payments. Management has been able to grow dividends closer to the long term average of 10% for most of the years. During the technology bubble of 2000s and the great financial crisis of 2008, Clorox lowered its dividend growth to low or mid single digits, from high single digits and low double-digits.

Measuring the Dividend Payout Ratio

Lets calculate the the dividend payout ratio for Clorox Stock. Dividend Payout Ratio measures how much of a company’s free cash flow is paid out in the form of dividends.

Free cash flow is the cash a company generates from daily operating activities minus capital expenditures like investing in new plants or equipment.

Free cash flow is calculated from the statement of cash flows, and is not artificially modified using accounting rules or non-cash expenses like depreciation, amortization, fair value revaluations, etc.

In 2019, Clorox generated $992 million in cash flows from operations and spent $206 million in capital expenditures. What is the free cash flow?

Free Cash Flow = Cash from Operations – Capital Expenditures

Free Cash Flow = $992 million – $206 million

FCF = $786 million

For fiscal 2019, Clorox paid out a total $490 million in dividends. So what is the dividend payout ratio?

Dividend Payout Ratio = Total Dividends Paid / Free Cash Flow

Dividend Payout Ratio = $490 million / $786 million

Dividend Payout Ratio = 62%

A dividend payout ratio of 62% is quite healthy for a mature company like Clorox and there is room for continued low to mid single digits growth. The company could also benefit from making a large acquisition and gaining synergy to increase cash flows and earnings per share.

Stock Valuation

Analysts expect Clorox to earn $6.38 in earnings per share for 2020. Using the current stock price of $185.5 and dividing in to the expected earnings, we get a forward price to earnings ratio of 29 times earnings. As a comparison, the S&P 500 currently trades at 17 times forward earnings.

Since Clorox a member of the S&P Consumer Staples Index (XLP), it is regarded as a “safe stock” and during market volatility, investors turn to Staples stocks for their safe dividend yields. The company has a huge competitive moat around its business, holds #1 and #2 positions for most of its brands and has strong recurring cash flows. These are recipes for successful dividend investing.

Long Term Performance

Clorox Stock price has risen from $10 in January 1990 to as high as $185.5 as of April 2020. This represents a compounded annual growth rate (CAGR) of 10.2% over 30 years. This is a very strong performance over 3 decades. No wonder Clorox Stock trades at 29 times forward earnings versus the S&P 500 Consumer Staples Index (XLP) that trades at just 18 times forward earnings.

During the depths of the great financial crisis of 2008, Clorox Stock dropped from a high of $67 in June 2007 to $46 as of March 2009. This was a drop of 31% from peak to trough. This was a great performance as the broader market S&P 500 dropped 56% during this time period.

Executive Summary

Here is what we like and don’t like about Clorox (CLX) Stock.

Likes

  • 42 years of growing dividends making this a dividend aristocrat stock.
  • Decent dividend yield of 2.3%, 20 basis points higher than the broader market S&P 500.
  • Dividend payout ratio of 62% leaving room for future dividend raises, accretive acquisitions and share repurchases.

Dislikes

  • Neutral dividend payout ratio of % and a slowing dividend growth rate of low single digits.
  • High forward price to earnings ratio of 29 times 2021 earnings, versus the S&P 500 which is trading at 17 times forward earnings.
Market Capitalization $23.2 Billion
Dividend Yield 2.3%
Forward PE Ratio 29 times 2021 earnings
Dividend Growth (5 Year Avg.) 7.2%
Dividend Payout Ratio 62%
EPS Growth (5 Year Avg.) 7.5%
2019 Revenues $6.214 Billion
Gross Margin 44.2%
Net Margin 13.2%

Clorox Stock Ex Dividend Dates

Declared Ex-Date Record Payable Amount Type
Feb 11, 2020 Apr 20, 2020 Apr 22, 2020 May 8, 2020 $1.06 U.S. Currency
Nov 19, 2019 Jan 27, 2020 Jan 29, 2020 Feb 14, 2020 $1.06 U.S. Currency
Total Dividends in 2020: $2.12
Sept 17, 2019 Oct 28, 2019 Oct 30, 2019 Nov 15, 2019 $1.06 U.S. Currency
May 20, 2019 Jul 29, 2019 Jul 31, 2019 Aug 16,2019 $1.06 U.S. Currency
Feb 12, 2019 Apr 22, 2019 Apr 24, 2019 May 10, 2019 $0.96 U.S. Currency
Nov 13, 2018 Jan 21, 2019 Jan 23, 2019 Feb 8, 2019 $0.96 U.S. Currency
Total Dividends in 2019: $4.04
Sept 18, 2018 Oct 29, 2018 Oct 31, 2018 Nov 16, 2018 $0.96 U.S. Currency
May 21, 2018 July 30, 2018 Aug 1, 2018 Aug 17, 2018 $0.96 U.S. Currency
Feb 13, 2018 April 23, 2018 April 25, 2018 May 11, 2018 $0.96 U.S. Currency
Nov 14, 2017 Jan 22, 2018 Jan 24, 2018 Feb 9, 2018 $0.84 U.S. Currency
Total Dividends in 2018: $3.72

Source: Clorox Investor Relations

Clorox Stock Price

To see the latest Clorox Stock price, visit the company’s Investor Relations website and select “Stock Quote.”

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