Clorox (NYSE:CLX) is the parent company of some of the best-known brands in the world. In addition to its universally recognizable brand of cleaning products, the company also makes staples like Kingsford charcoal, Brita water filters and Pine-Sol furniture polish.
Like most consumer staples companies, Clorox also offers a high dividend yield that has been gradually growing for decades.
Is Clorox worth buying for its dividend right now, and what do the company’s prospects look like going forward?
How High Is Clorox’s Dividend?
Right now, each share of Clorox pays $4.80 in dividends throughout the year, giving the stock a yield of 3.2%. This compares very favorably to the S&P 500 as a whole, which yields just 1.2%.
While Clorox is a fairly mature company whose rate of dividend growth has slowed, management has still been able to raise the payout at a compounded annual rate of 3.3% over the last five years.
The one potential issue that stands out with Clorox’s dividend is its high payout ratio. At over 130% of earnings per share, Clorox’s dividend at first glance seems difficult to sustain. However, operating cash flow provides decent coverage for the CLX dividend, and management seems unlikely to allow its long streak of dividend increases to end anytime soon.
How Does CLX’s Valuation Look?
As a mature, dominant company with an excellent brand moat, it’s not surprising that Clorox carries a somewhat high valuation. The metrics at which CLX trades, however, may concern some value-oriented investors. The stock is currently priced at 41.2 earnings, 2.6x sales and 27.0x cash flow.
Despite these high value multiples, analysts do still see at least some upside in Clorox. The average price forecast for the coming 12 months is $164.39. If the stock reaches this target, investors will see a return of about 9% compared to the current price of $150.77. The consensus rating for Clorox is currently a hold.
Does Clorox Still Have Room for Growth?
Between a high dividend payout ratio and high valuation metrics, investors interested in Clorox will likely want to see room for future earnings growth.
Net income has been a challenge for Clorox over the last several years. After peaking early in the 2020-21 era, annual net incomes fell well below the averages they had maintained through most of the 2010s. Although revenue didn’t fall off the cliff in the way that net income did, Clorox’s revenues have been fairly flat over most of the past few years.
Q2 was very much a mixed bag with diluted earnings per share climbing 105% to $1.54, though much of this gain was attributable to insurance recoveries from a cyberattack that struck the company in 2023.
EPS came in at $1.55, down from $2.16 in the year-ago quarter while net sales also tumbled by 15% to $1.69 billion. The second quarter’s choppy results, especially in the area of net sales, triggered a significant selloff when management reported earnings.
To spur growth, Clorox has been pursuing a multi-year turnaround plan that involves investing heavily in advertising for core products, selling off less productive business lines and improving operational efficiency. The plan has resulted in nine consecutive quarters of gross margin expansion, but it has also been quite expensive. All told, the company expects to spend a total of $580 million on these efforts. The plan has been in the works since 2021 and is expected to continue through 2026.
The good news for investors is that analysts are broadly optimistic about the company’s chances of turning around its flagging earnings.
Over the next 3-5 years, earnings per share are expected to increase at an average rate of about 9.9% per year. This increase in EPS could go a long way toward justifying Clorox’s high multiples and shoring up its ability to continue raising its dividend sustainably over time.
What Are the Risks in CLX?
The biggest risk inherent to Clorox at the moment is the fact that the company is still pursuing its turnaround efforts. While margins are expanding, there’s still a risk that the long-term results of the turnaround strategy won’t be worth its price tag. This hurdle is somewhat mitigated by the fact that Clorox still has a portfolio of extremely strong brands to use as a foundation for its business.
The other bump in the road for Clorox is the remaining problem of higher inflation. Although the company’s brands have excellent consumer recognition and will almost certainly remain in favor, tight household budgets may cause more consumers to choose cheaper alternatives in the short run.
January’s inflation data showed the CPI advancing by 3%, more than the 2.9% projected by economists. With inflation still running above the Fed’s 2% target rate and tariffs likely to put upward pressure on prices, brand-name products may be in for a tough time compared to off-brand alternatives.
Is Clorox Dividend Worth It?
Trading at around 40x earnings, Clorox 3.3% dividend may not be worth the downside risk in the stock if the earnings multiple re-rates lower.
Even with the potential for renewed earnings growth ahead as a result of its turnaround strategy, Clorox is unlikely to generate explosive returns. As a mature consumer staples business, the company is more likely to produce gradual, reliable growth over long periods of time.
As a result, CLX may not appeal much to high-risk investors seeking fast growth opportunities. With that said, the stock does have quite a lot to recommend it as a conservative income-generating opportunity. With more than double the yield of the S&P 500 and a relatively high degree of dividend safety, Clorox may offer investors a good opportunity for both current income and gradual dividend growth.
On top of its yield, Clorox share prices could rise as the company’s push toward better efficiency and focus on its core brands continues to improve its margins. Between gradual share appreciation and a healthy dividend, CLX has the potential to deliver respectable total returns at a relatively moderate risk level. Because of this, Clorox could appeal to some investors as part of a portfolio of blue-chip dividend stocks.
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