Updated on February 28th, 2024
Consumer staples stocks are some of the most reliable dividend payers in the stock market. People need staples products for their daily lives, which provides a certain level of demand from year to year.
Demand for everyday products remains steady, even during recessions, which makes it an appealing industry for investors looking for consistent dividends.
This is why there are several consumer staples stocks on the Dividend Aristocrats list, which includes 68 companies in the S&P 500 Index, with 25+ consecutive years of dividend increases.
You can download an Excel spreadsheet of all 68 Dividend Aristocrats (with metrics that matter such as dividend yields and price-to-earnings ratios) by clicking the link below:
Disclaimer: Sure Dividend is not affiliated with S&P Global in any way. S&P Global owns and maintains The Dividend Aristocrats Index. The information in this article and downloadable spreadsheet is based on Sure Dividend’s own review, summary, and analysis of the S&P 500 Dividend Aristocrats ETF (NOBL) and other sources, and is meant to help individual investors better understand this ETF and the index upon which it is based. None of the information in this article or spreadsheet is official data from S&P Global. Consult S&P Global for official information.
Each year, we review all Dividend Aristocrats individually. The next stock in the series is The Clorox Company (CLX). Clorox has raised its dividend for 46 years in a row.
This article will provide an in-depth review of Clorox’s business model, and future outlook.
Business Overview
Clorox started out over 100 years ago, with the debut of its namesake liquid bleach in 1913. Today, it is a global manufacturer of consumer and professional products than collectively span a wide variety of uses and customers. The company produces annual revenue in excess of $7 billion and it sells its products in more than 100 markets.
The company has a highly diverse set of businesses with myriad brands and products within each, providing Clorox with huge global scale.
The company’s largest segment is health and wellness, which is part of the core Cleaning segment. However, Clorox is much more than a cleaner company as it produces food, pet products, charcoal, and a wide variety of other brands.
Source: Investor Presentation
The Household segment includes the Glad, Kingsford, Fresh Step, and Renew Life brands. Cleaning products include Clorox, Pine-Sol, and the Clorox Commercial Solutions businesses. Lifestyle brands include Hidden Valley, Burt’s Bees, and Brita. Lastly, the International segment sells Clorox’s brands around the world.
Approximately 60% of its total revenue comes from products that hold the #1 or #2 market share in their respective product categories.
Clorox posted second quarter earnings on February 1st, 2024, and results were better than expected. Adjusted earnings-per-share of $2.16 came in more than double the average estimate of $1.06. Revenue increased 16% year-over-year to $1.99 billion, and beat estimates by a massive $190 million.
Organic sales were up 20% during the quarter, which it said was due to favorable pricing and mix, as well as customers rebuilding their inventory levels. That suggests the level of sales growth from Q2 is likely not repeatable.
Gross margin soared 730 basis points higher year-over-year to 43.5% of revenue, which was due to the benefits of pricing and cost saving initiatives.
Growth Prospects
Looking ahead, Clorox has some levers it can pull to continue its growth. The company is continuously innovating with product extensions on its current lineup, such as flavors and cross-branding. It has done those things for a long time and will continue to do so in order to stay competitive.
It is also focusing its mergers and acquisitions on companies that are growing, focused in the US, and are margin-accretive. Clearly, the company wants to boost domestic growth and margins through acquisitions.
Margin expansion is another longer-term goal for the company.
Source: Investor Presentation
Clorox sees potential in rebuilding its margins through pricing actions, cost savings, and by optimizing its supply chain over the long-term.
Clorox is also taking a prudent approach by buying companies with a better margin profile than its existing portfolio, which boosts revenue and margins simultaneously.
Lastly, Clorox can increase earnings-per-share with share repurchases. In all, we forecast 8% earnings-per-share growth annually for Clorox over the next five years.
Competitive Advantages & Recession Performance
Clorox has multiple competitive advantages. First, it holds a tremendously strong brand portfolio. As previously mentioned, Clorox products enjoy high market share across the portfolio.
Clorox retains its high industry position in part through advertising and it spends very heavily to maintain that position. Product marketing is a necessity for consumer products manufacturers and Clorox spends ~10% of its revenue on this each year.
Another advantage of Clorox’s business model is that its products are used by millions of people each day, in good economies and bad. According to the company, Clorox-branded products are in about nine of ten U.S. households.
There will always be a certain level of demand for household cleaning products and food, even if the economy enters a downturn. This allows the company to remain profitable during recessions. Indeed, Clorox is a strong example of a defensive stock. Its earnings-per-share through the Great Recession are shown below:
- 2007 earnings-per-share of $3.23
- 2008 earnings-per-share of $3.24 (0.3% increase)
- 2009 earnings-per-share of $3.81 (18% increase)
- 2010 earnings-per-share of $4.24 (11% increase)
As you can see, Clorox increased earnings-per-share each year throughout the recession, including double-digit earnings growth in 2009 and 2010.
Clorox also performed very well during the coronavirus pandemic, as its products saw much higher demand as consumers spent much more time at home. This demonstrates the company has a very recession-resistant business model and a high level of safety.
Valuation & Expected Returns
We expect Clorox to generate earnings-per-share of $5.50 for fiscal 2024. Based on this, CLX shares trade for a price-to-earnings ratio of 27.9. This is above our estimate of fair value, which is 23 times earnings.
As the stock is trading above fair value, we see it as overvalued. If the P/E multiple falls from 27.9 to 23 over the next five years, it would reduce annual returns by 3.8%.
Shareholder returns will be further boosted by future earnings-per-share growth, which we estimate at 8% per year. Finally, Clorox’s 3.1% dividend yield will add to shareholder returns. This leads to total expected returns of 7.3% per year over the next five years.
This is a decent expected rate of return but is not high enough to warrant a buy rating at this time.
Final Thoughts
Clorox is a reliable dividend stock. The company has a leadership position across its product markets, with potential for some growth. The company should be able to continue its four-decade long streak of annual dividend raises regardless of the overall economic climate. This makes it a consistent dividend stock for risk-averse income investors.
However, the stock remains a hold in our view, and investors interested in total return potential should wait for a further pullback in the share price.
Additionally, the following Sure Dividend databases contain the most reliable dividend growers in our investment universe:
- The Dividend Contenders List: 10-24 consecutive years of dividend increases.
- The Dividend Challengers List: 5-9 consecutive years of dividend increases.
- The Dividend Champions: Dividend stocks with 25+ years of dividend increases, including those that may not qualify as Dividend Aristocrats.
- The Dividend Achievers: dividend stocks with 10+ years of consecutive dividend increases.
- The Dividend Kings: considered to be the ultimate dividend growth stocks, the Dividend Kings list is comprised of stocks with 50+ years of consecutive dividend increases
If you’re looking for stocks with unique dividend characteristics, consider the following Sure Dividend databases:
- The Complete List of Monthly Dividend Stocks: stocks that pay dividends each month, for 12 payments over the year.
- The Blue Chip Stocks List: this database contains stocks that qualify as either Dividend Achievers, Dividend Aristocrats, or Dividend Kings.
The major domestic stock market indices are another solid resource for finding investment ideas. Sure Dividend compiles the following stock market databases and updates them monthly: