Clorox Means Income, Income, Income

 | Jul 12, 2013 | 1:00 AM EDT  | Comments
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For all stocks, the bull or bear case can often change based on the time frame, and Clorox (CLX) is no exception. Any investor looking for a pop in the next week could be disappointed -- but, under any longer-term time frame, I am constructive on this name. Of course, someone looking for explosive Netflix (NFLX)-type growth will be disappointed, but Clorox could have a role in any portfolio as a stable consumer-staple name that can provide income and offset the volatility of the go-go names. The bull case for Clorox is simple: income, income, income. 

Clorox has been one of the great dividend payers of the past decade. Ten years ago the company was paying out $0.24 per share each quarter, and the most recent dividend hike was to $0.71, to be paid in August. That's a 196% increase! (By the way, Clorox goes ex-dividend on July 22, so build your position now if you want collect that attractive 0.84% payment.) Of course, the payout is driven by stable results in a bevy of consumer and household products, such as cleaners, cat litter, charcoal, trash bags and so on. All are higher-margin branded products.

The most recent quarter was a bit weaker than expected due to soft charcoal sales -- a result of poor spring weather that induced a later start to barbeque season. Other than that temporary blemish, most categories showed on-track sales. The trend over the past 18 months has been toward higher earnings per share, which has more than justified the run in the stock. 

Clorox (CLX) -- Stock Price vs. EPS Estimates
Source: FactSet using Thomson Reuters estimates

It's no surprise that the stock was smacked this spring on rising interest rates, as these decimated all of the higher-yielding dividend stocks. You can see the damage in the chart, though it was not as extensive for Clorox as it had been in more yield-oriented sectors, such as utilities. 

Clorox (CLX) -- Daily
Source: Yahoo! Finance

Clorox lost only 8% from peak to trough. That's a benign swoon when compared with the damage in Utilities SPDR (XLU) or the Dow Jones Equity REIT Index, for example -- which were down 12% and 16%, respectively. Clorox currently sports a 3.3% dividend, an attractive but not excessive yield. I should also mention that the stock is a perfect candidate for dividend capture. In fact, I play it every quarter, collecting that dividend then moving on to other names. 

So the bull case for Clorox is not a barn-burner, but it is simple: 

• Stable consumer-staple businesses provide modest but dependable gross-domestic-product-type growth;

• substantial cash generation funds a generous dividend -- one that has been raised consistently for years;

• rising earnings estimates support the gradual appreciation of the stock; and

• a reasonable chart demonstrates some immunity to interest-rate shocks.

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