This boring bleach maker pays a 6.2% dividend and is one year away from the Dividend King title
An American bleach maker offers a yield investors normally expect from tobacco or real estate funds. At the same time, it has raised its dividend for the 49th consecutive year and is thus only a year away from being crowned a dividend king. But there are obstacles on the horizon that could prevent it.
Key points
The bleach maker's shares now offer a yield investors typically demand from tobacco companies and real estate funds.
Last year the company paid out more money to shareholders than it officially earned, and still raised the dividend again.
The share price has fallen from $128.90 to about $80, and of 19 analysts, only one recommends buying.
A year before winning the Dividend King title, the company is looking for a new CEO and entering a year with cost inflation of over $200 million.
In the results there are four numbers that will tell whether the six-percent yield is a bargain or a warning.
A yield the bleach maker has never offered
Clorox $CLX is exactly the type of company nobody talks about at parties. For over a hundred years it has sold bleach, Glad trash bags, Fresh Step cat litter, disinfecting wipes, and since this year also Purell hand sanitizer. About 80% of sales come from brands that are number one or two in their category. A boring company, a boring stock. At least until recently.
From its February high of $128.90, the share price has fallen to about $80, a multi-year low, and market capitalization has shrunk to just under $10 billion. The quarterly dividend of $1.25 per share thus gives a yield of over 6%. For comparison: Procter & Gamble $PG, which sells to customers in the same aisles, offers about half that yield. Six percent is a level investors typically demand from tobacco companies or real estate funds, not from a maker of cleaning products.
And here the contradiction begins. The market is pricing Clorox as if it would have to cut the dividend sooner or later. Yet the company is acting as if no such thing is threatened: in July it raised the dividend for the 49th consecutive year, and the next increase in the summer of 2027 would make it a "Dividend King", a member of an elite club of companies with a fifty-year streak. One of the two is wrong.