Friday, April 8, 2011

Clorox (CLX) Dividend Stock Analysis

The Clorox Company (CLX) engages in the production, marketing, and sales of consumer products in the United States and internationally. The company operates through four segments: Cleaning, Lifestyle, Household, and International. The company is a dividend aristocrat which has increased distributions for 33 years in a row. The most recent dividend increase was in January, when the Board of Directors approved a 6.40% increase to 25 cents/share. The major competitors of Clorox include Procter & Gamble (PG), Colgate-Palmolive (CL) and Church & Dwight (CHD).


Over the past decade this dividend stock has delivered an annualized total return of 8.60% to its loyal shareholders.

The company has managed to deliver an impressive increase in EPS of 13.50% per year since 2001. Analysts expect Clorox to earn $3.95 per share in 2011 and $4.43 per share in 2012. This would be a nice increase from the $4.24/share the company earned in 2010. The company has managed to decrease the number of shares outstanding by 6.70% per year over the past decade through share buybacks, which has aided earnings per share growth.

In 2007 the company introduced its Centennial Strategy where the company is focused on achieving double-digit annual growth in economic profit. A key driver of the strategy is to accelerate sales by growing existing brands, including expanding into adjacent categories, entering new sales channels and increasing penetration within existing countries. The company also anticipates using its strong cash flow to pursue growth opportunities and increase shareholder returns. For an update on the results from the strategy, check this press release.
Basically the company will try to deliver further growth through an ongoing focus on consumer megatrends. In addition to that the company will be targeting a 2% sales growth through product innovation. The company projects sales growth of 3-5 percent, excluding acquisitions and expansion into new geographies through 2013. Last but not least Clorox will target margin expansion and maximizing cash flow through implementation a continued robust cost-saving program and maintaining price increases the company has taken.

The return on assets has largely remained above 11% since 2003. I used return on assets, since the stockholders equity portion of the balance sheet was negative after in 2004 Clorox exchanged its ownership in a subsidiary for approximately 29% of the company’s outstanding shares at the time of this transaction.

The annual dividend payment has increased by 10.10% per year since 2001, which is lower than the growth in EPS.


A 10% growth in distributions translates into the dividend payment doubling every 7 years. If we look at historical data, going as far back as 1983, we see that Clorox has indeed managed to double its dividend every seven years on average.
Over the past decade the dividend payout ratio has remained below 50% for a majority of the time with the exception of a brief period in 2001 and 2002. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

Currently Clorox is trading at 16.80 times earnings, yields 3.20% and has a sustainable dividend payout. The stock meets my entry criteria, and I will look forward to adding to my existing position in it.

Full Disclosure: Long CLX
Relevant Articles:

5 comments:

  1. Thank-you for posting. I'm fairly green to investing and I find your blog very interesting and helpful. I would like to know how you deal with brokerage fees when and if you are adding small amounts to a position? It seems that you have your portfolio well diversified so what types of numbers makes it worth while to purchase. I generally find with the commission structure that I'm dealing with under a few hundred shares and my cost per share is quite high.

    Cheers,
    Carlos

    ReplyDelete
  2. As always another great post. I love the charts!

    ReplyDelete
  3. Great blog. In your posts that refer to a stock screener, which screener tool do you use?

    ReplyDelete
  4. Carlos,

    I used Zecco for a long time. In 2006-2008 they had free trades for accounts with at least $2500. Sicnce 2009 it was free trades for accounts over $25K. Now it is more difficult, but I might be using sogotrade with their $3 trades and maybe increase my order size to $1000 from say $250 or $500 per stock.

    Rick,

    I don't use any screeners. Read this article on info how I get to my stock ideas:

    http://www.dividendgrowthinvestor.com/2011/03/my-entry-criteria-for-dividend-stocks.html

    ReplyDelete
  5. Clorox has a DRIP through computershare.com. You start with a small position and have computershare take a set amount from your checking account. No fees to purchase or reinvest dividends. There are fees to sell but not extravagant. I know Clorox won't make me rich but the return has been impressive compared to S&P500 index funds and the like.

    ReplyDelete

Questions or comments? You can reach out to me at my website address name at gmail dot com.

Popular Posts