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Summary

  • Clorox’s dividend yield (3.19%) is higher than Procter & Gamble’s dividend yield (2.98%).
  • Clorox has grown revenue per share significantly faster than Procter & Gamble over the last 10 years.
  • Both businesses appear to be fairly valued or slightly overvalued compared to their peers and the overall market.

Procter & Gamble (NYSE:PG) is a globally integrated consumer products company. Procter & Gamble is one of only 5 corporations that have been on the Dividend Aristocrat list continuously since 1989. The image below shows the size, stability, and brand power of Procter & Gamble:

(click to enlarge)Source: Procter & Gamble Investor Relations

Clorox (NYSE:CLX) has sold consumer products for over 100 years. Clorox's mission is to "make everyday life better, every day" through their portfolio of consumer products. Clorox is a global business, operating in over 100 countries. 90% of Clorox's brands are #1 or #2 in their categories.

Clorox owns household-name brands including: Formula 409, Clorox, Liquid-Plumr, Tilex, Kingsford, Glad, Fresh Step, Hidden Valley, Brita, Burt's Bees, Aplicare, & HealthLink. Clorox has increased their dividend for 36 consecutive years.
Source: Clorox 2013 Annual Report

Dividend Yield

  • Procter & Gamble: 2.98%
  • Clorox: 3.19%

Stocks with higher dividend yields have historically outperformed stocks with lower dividend yields. The highest yielding quintile of stocks outperformed the lowest yielding quintile by 1.76% from 1928 to 2013. (Source: Dividends: A Review of Historical Returns)

Clorox dividend yield is higher than Procter & Gamble's. Clorox outperforms Procter & Gamble in this metric.

Payout Ratio

  • Procter & Gamble: 60.80%
  • Clorox: 62.20%

Source: Finviz

High yield low payout ratio stocks outperformed high yield high payout ratio stocks by 8.2% per year from 1990 to 2006.
(Source: High Yield, Low Payout by Barefoot, Patel, & Yao, page 3)

Procter & Gamble and Clorox both have high payout ratios. Ideally, both of these businesses' payout ratios would be lower. Procter & Gamble currently has a slightly lower payout ratio. It wins this category.

Revenue per Share Growth

  • Procter & Gamble: 4.59%
  • Clorox: 6.35%

Growing dividend stocks have outperformed stocks with unchanging dividends by 2.4% per year from 1972 to 2013. (Source: Rising Dividends Fund, Oppenheimer, page 4)

Clorox is growing substantially faster than Procter & Gamble based on revenue per share growth. Both companies invest heavily in share buybacks. Clorox has historically been able to grow organic revenues at a faster pace than Procter & Gamble. Procter & Gamble has especially struggled in developed markets, where growth was flat for 2013. Clorox has a clear advantage in this category.

Long-Term Price Volatility

  • Procter & Gamble: 17.83%
  • Clorox: 18.40%

The S&P Low Volatility index outperformed the S&P 500 by 2.00% per year for the 20-year period ending September 30th, 2011. (Source: Low & Slow Could Win the Race, page 3)

Both of these businesses have had low price volatility over the last 10 years. Procter & Gamble has been somewhat less volatile, but the difference is not large.

(click to enlarge)

Source: Google Finance

Notice how both Procter & Gamble and Clorox performed during the market crash of 2009. Both stocks fell significantly less than the S&P500 as a whole. The stability of brand-name consumer products results in lower price volatility.

Valuation

Procter & Gamble and Clorox both appear to be fairly valued compared to their peers.

Company

Ticker

P/E

Procter & Gamble

PG

21.84

Clorox

CLX

20.73

Unilever

UL

19.40

Colgate-Palmolive

CL

27.33

Kimberly-Clark

KMB

19.85

Estee Lauder

EL

26.74

Energizer Holdings

ENR

15.80

Clorox and Procter & Gamble are both somewhat overpriced compared to the S&P500.

  • S&P500 P/E: 18.15
  • Procter & Gamble P/E: 21.84
  • Clorox P/E: 20.73

Source: Multpl.com

Clorox is slightly cheaper than Procter & Gamble based on their P/E ratios.

Conclusion

Both Clorox and Procter & Gamble appear to be fairly valued or slightly overpriced at this time. Both have a strong history of rewarding shareholders through growth, share repurchases, and dividends. Both companies have iconic brands in the consumer products industry. Clorox is favored based on the 8 Rules of Dividend investing, primarily due to its significantly higher growth rate, and higher dividend yield. Both businesses are solid long-term investments.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source: Clorox Vs. Procter & Gamble: Battle Of Consumer Product Dividend Aristocrats