The Clorox Company, A Safe Investment?

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Are you tired of looking at complex business models involving cutting-edge technology and uncertain paths to profitability?

I am.

Which is why it’s refreshing to step-back and take a look at The Clorox Company.

The Clorox Company makes cleaning products and then sells these products at a higher price than their input costs.

It’s a proven business model. One that’s grown The Clorox Company from a $500 start-up into a $14.74 billion global powerhouse. It’s also allowed Clorox to consistently raise its dividend every year for 48 years, making the firm a longstanding Dividend Aristocrat.

Consumer staples are currently out of favor. And many big names, like Procter & Gamble and Colgate-Palmolive, are down year-to-date.

Clorox is no exception.

The Clorox Company is down -26.60% year-to-date, giving the firm an impressively high 4.12% starting dividend yield. And in this special report, I want to explain who this could be a good investment for — as well as who should skip this stock.

Founded in 1913, The Clorox Company began when five businessmen each invested $100 to found America’s first commercial liquid bleach factory.

Since then, the company has had a long and interesting history. Clorox sold bleach to the United States government during World War II and also produced a public safety announcement titled “What to Do in a Gas Attack.” In the 1950’s, Clorox was bought-out by Procter & Gamble, only for an antitrust lawsuit to force Procter & Gamble to divest. And in the 1970’s, Clorox acquired Hidden Valley Ranch and Kingsford Company.

Today, The Clorox Company owns several recognizable household brands, including: Clorox, Pine-Sol, Glad, Burt's Bees, and Brita.

During the Pandemic, Clorox stock had a major run-up and the company began trading at “tech stock valuations” with a price to earnings ratio in the 30’s. But since then, Clorox has sold-off and shares are down by more than -47% from the firm’s 2020 highs.

The company is now trading at a much more reasonable valuation, with a price to earnings ratio of 19.98.

Additionally, The Clorox Company has a 4.12% starting dividend yield — significantly higher than peers like Procter & Gamble or Colgate-Palmolive. And while Clorox’s dividend growth is the slowest of these three firms, it is well-covered by a reasonably safe payout ratio.

The Clorox Company has a paltry 5-year compound annual dividend growth rate of 2.69%, failing to keep up with inflation.

In contrast…

Procter & Gamble has a starting yield of 2.77% and a 5-year compound annual dividend growth rate of 6.07%. And Colgate-Palmolive has a starting yield of 2.63% and a 5-year compound annual dividend growth rate of 3.23%.

Through dividend growth alone, it would take Procter & Gamble over 11 years to double its yield-on-cost to 5.54%.

For Colgate-Palmolive, it would take over 22 years to double the yield-on-cost to 5.26%.

These calculations don’t include dividend reinvestment. However, it would take both businesses years to growth their yield-on-cost to the same level as The Clorox Company’s day one starting yield.

Because it was a pandemic-era bubble stock, and because it has since experienced “valuation compression” and reverted to a more reasonable price to earnings ratio, The Clorox Company has a terrible 10-year average annual total return.

Over the past decade, Clorox delivered an average annual total return of 2.83%.

And that’s with dividends reinvested.

If you had bought this company in 2015 and held until today, you would have underperformed a high-yield savings account.

That said, much of this underperformance was caused by a massive share price run-up, not poor business fundamentals. If you’d bought The Clorox Company in January of 2015 and sold during the 2020 bubble, you’d have netted a +110% gain — dividends excluded.

Bleach, trash bags, and toilet bowl cleaner are evergreen products.

The Clorox Company could be a great long-term investment if you’re looking for a high-yield consumer staple and aren’t particularly worried about the firm’s slow rate of dividend growth.

But if you want a consumer staple with a faster dividend growth rate, Procter & Gamble is the obvious choice.

And if you want a solid starting yield and double digit dividend growth, look to sectors like finance and insurance — two industries where many businesses consistently grow their dividends at a rate that outpaces inflation.

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Disclaimer: This article is for entertainment purposes only. It is not financial advice, always do your own research.