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Summary

  • The goal of our DIY Dividend Investor Club series is to build a dividend portfolio "watch list" by sector.
  • Clorox is one of our "stocks to watch" in the Consumer Staples sector.
  • CLX is currently trading at 21.22x trailing earnings, which represents 6.0% and 10.3% premiums to the company's respective 3-year and 10-year historical averages.

We are in the midst of our DIY Dividend Investors Club series which is dedicated to the open discussion and analysis of building and managing a long-term dividend portfolio. The goal of the series is to build a dividend portfolio "watch list" by sector (based on the 9 major sectors in the S&P 500 as well as alternative sectors like MLPs, REITs and BDCs).

Clorox (NYSE:CLX) is one of our "stocks to watch" in the Consumer Staples sector and this article highlights some key information and analysis from our Buy Zone Report for CLX.

Clorox Business Overview (source: S&P Capital IQ)

The Clorox Company manufactures and markets consumer and professional products worldwide. The company's Cleaning segment offers laundry additives, including bleach products under the Clorox brand, and Clorox 2 stain fighter and color booster; home-care products primarily under the Clorox, Formula 409, Liquid-Plumr, Pine-Sol, S.O.S, and Tilex brands; naturally derived home care products under the Green Works brand; and cleaning and disinfecting products under the Clorox, Dispatch, Aplicare, HealthLink, and Clorox Healthcare brands. Its Household segment offers plastic bags, wraps, and containers under the Glad brand; cat litter products under the Fresh Step, Scoop Away, and Ever Clean brands; and charcoal products under the Kingsford and Match Light brands. The company sells its products primarily through mass merchandisers, warehouse clubs, grocery stores, other retail outlets, distributors, and medical supply providers, as well as a direct sales force, combination of direct sales teams, and network of brokers. The Clorox Company was founded in 1913 and is headquartered in Oakland, California.

Parsimony Rating

The core of our investment philosophy is to buy great stocks at reasonable prices and we use a combination of fundamental and technical analysis to determine which stocks to buy and when to buy them.

We created our ranking system, which ranks over 750 U.S. dividend stocks on a monthly basis, to help us find the best dividend stocks. In our experience, if you rank all of the stocks in a universe against their peers on a consistent basis, it becomes clear which companies are the strongest and which offer the best investment opportunities going forward. Our composite rating is derived by ranking each stock based on 28 key fundamental and technical data points in five sub-rating categories.

The table below for Clorox highlights some of the key data points that we look at when determining our rating.

As highlighted in the table above, Clorox has a decent overall Parsimony Rating of 77, primarily driven by high ratings for Risk/Reward Profile (86) and Dividend Track Record (95).

CLX has a low beta (0.46) and the stock has exhibited low volatility in the past. In addition, CLX has a nice dividend yield of 3.2% and it has delivered shareholders a 94% total return over the past 5 years.

The company has increased its dividend at a compound annual rate of 9.1% and 10.7% over the past 5-year and 10-year periods, respectively. CLX has increased its dividend to shareholders every year since 1977. In addition, the stock has had a very modest maximum drawdown during the past recession of 28.4%, which has allowed CLX investors to sleep very well at night. As shown in the chart below, CLX has raised its quarterly dividend 4 times in the past 20 quarters (and the company is due for another hike next quarter).

Valuation Analysis

Valuation is a key factor in determining our "Buy Zones."

We use our rating system to determine WHICH stocks to buy and we use our "Buy Zone" reports to determine WHEN to buy them. We focus on four key levels of support when determining a "Buy Zone":

  • Valuation - Support levels based on historical valuation multiples.
  • Technical - Support from short and long-term trend lines (i.e., 10-week and 40-week moving average).
  • Volatility - Target correction levels based on historical volatility and maximum draw down.
  • Yield - Support levels based on forward dividend yield.

Below is a summary valuation analysis for Clorox:

As highlighted above, CLX is currently trading at 21.22x trailing earnings, which represents 6.0% and 10.3% premiums to the company's respective 3-year and 10-year historical averages.

Based on consensus estimates for FYE 6/30/15, CLX is currently trading at 20.66x forward earnings, which represents 3.3% and 7.4% premiums to the company's respective 3-year and 10-year historical averages.

Is Clorox In The "Buy Zone"?

CLX currently trades 5.9% above the top range of its Buy Zone. Ideally, we would like to purchase CLX under $87.00 (which would equate to a forward P/E ratio under 20.0x and a forward yield around 3.25%).

Source: Clorox: 'Buy Zone' Entry Point And Valuation Analysis