- Clorox operates in 100 counties, Kimberly-Clark operates in 175.
- About 90% of Clorox' brands are either #1 or #2 in their categories.
- Kimberly-Clark has the #1 or #2 brand in a category in 80 countries.
- Both businesses have dividend yields north of 3%.
- Kimberly-Clark has 5 brands with $1 billion+ in sales per year.
Clorox is a global consumer product business operating in over 100 countries. About 90% of the company's brands are either #1 or #2 in their respective categories. The company brand portfolio includes: Burt's Bees, Clorox, Formula 409, Kingsford, Glad, Fresh Step, and Hidden Valley. Source: Clorox Investor Relations
Kimberly-Clark is also a global consumer product business. The company operates in over 175 countries. Kimberly-Clark has the # 1 or #2 brand in at least one category in 80 countries. The company has five brands with over $1 billion per year in annual sales: Huggies, Kleenex, Kotex, Pull Ups, & Scott. Source: Kimberly-Clark Investor Relations
Both Clorox and Kimberly-Clark have a long history of increasing dividends. Clorox has increased its dividend for 37 consecutive years, while Kimberly-Clark has increased its dividend for 42 consecutive years. Both companies' competitive advantages rest on their strong consumer product brands.
Clorox Current Events
Clorox' consumer product brand portfolio is very well diversified. The company's revenue by division and brand for 2014 is shown below:
(click to enlarge)
Source: Clorox 2014 CAGNY Presentation
Clorox reported a 1.3% currency neutral revenue increase for the 3rd quarter of 2014. The company is experiencing growth at the low end of expectations. Slow growth was due to weakness in the company's cleaning division (sales down 4%) and lifestyle division (sales down 3%). The cleaning division includes products such as Clorox Tilex, and Pinesol. The lifestyle division includes Brita and Hidden Valley, among others. Source: Clorox 3rd Quarter Press Release
Clorox posted positive constant currency revenue growth in the third quarter due to the company's two bright spots: Household (sales up 4%) and International (currency neutral sales up 9%). Household growth came primarily from Glad and Kingsford charcoal sales. International sales are up from strong growth in Southeast Asia and Latin America.
Shareholders of Clorox can expect a return of between 6% and 10% going forward. Dividends (3%), share repurchases (2%), revenue growth (1% to 4%), and margin improvements (0% to 1%) will deliver shareholder return.
Kimberly-Clark Current Events
Kimberly-Clark posted strong results for its most recent quarter. The company managed to grow revenue across all four of its divisions:
· Personal Care (45% of revenue, 7% organic revenue growth)
· Consumer Tissue (31% of revenue, 3% organic revenue growth)
· K-C Professional (16% of revenue, 4% organic revenue growth)
· Healthcare (8% of revenue, 1% organic revenue growth)
Source: 2014 First Quarter Presentation
The company's Personal Care division's dominant brands are Huggies, Kotex, and & Pull Ups. Strong growth in this division shows that many of Kimberly-Clark's core brands are doing well.
Healthcare had the weakest overall performance for the company in the first quarter of 2014. Kimberly-Clark's management has decided to spin-off the company's Healthcare division. The Healthcare divisions does not complement the rest of the business well. The spin-off will be accretive to shareholders by allowing Kimberly-Clark to better focus on its core branded consumer products business and the new health-care spinoff to focus directly on its own operations. Source: 2014 First Quarter Presentation
Kimberly-Clark saw organic revenue growth of 12% internationally for the first quarter of 2014. Growth was driven by extremely strong diaper sales which were up 30% in China, 25% in Russia, and 15% in Brazil. Source: 2014 First Quarter Presentation
Going forward, shareholders of Kimberly-Clark can expect a CAGR of between 9% and 11% from organic growth (3% to 5%), share repurchases (3%), and dividends (3%).
Both businesses have a P/E ratio near 20. Clorox's P/E of 21.13 is slightly higher than Kimberly-Clark's P/E of 19.96. Both businesses P/E ratio is below the average P/E ratio of 23.63 for the companies' peers.
The Clorox Company
Procter & Gamble Co.
Estee Lauder Companies Inc.
Newell Rubbermaid Inc.
Energizer Holdings Inc.
Dividend Stocks with Long Histories
Clorox and Kimberly-Clark are 2 businesses out of 120 with 25+ years of dividend payments without a reduction. Both businesses will be compared to each other and the other 118 stocks with 25+ years of dividend payments without a reduction.
Each comparison category is one of the 5 Buy Rules from the 8 Rules of Dividend Investing. The reason why the comparison category is important is included along with the rankings of both Kimberly-Clark and Clorox.
Comparison 1: Dividend History
Clorox has paid increasing dividends for 37 consecutive years, while Kimberly-Clark has paid increasing dividends for 42 consecutive years. These long dividend streaks show the power of strong brands in the slow changing consumer products industry.
Why it matters: The Dividend Aristocrats (stocks with 25-plus years of rising dividends) have outperformed the S&P 500 over the last 10 years by 2.88 percentage points per year. Source: S&P 500 Dividend Aristocrats Factsheet, February 28 2014, page 2
Comparison 2: Dividend Yield
Clorox has a dividend yield of 3.23%, the 25th highest dividend yield out of 120. Kimberly-Clark has a dividend yield of 3.02%, the 39th highest dividend yield out of 120 stocks with 25+ years of dividend payments without a reduction. Clorox' higher yield gives it the edge in this category.
Why it Matters: 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 percentage points per year from 1928 to 2013. Source: Dividends: A Review of Historical Returns
Comparison 3: Payout Ratio
Clorox has a payout ratio of 63.10%, giving it the 95th lowest payout ratio out of the 120 stocks mentioned above. Kimberly-Clark has a payout ratio of 58.10%, which gives it the 82nd lowest payout ratio out of 120.
Kimberly-Clark has a small advantage over Clorox in this category due to its slightly lower yield. Neither business' dividend yield is in danger, but dividend growth is unlikely to be higher than overall business growth due to the fairly high payout ratios of both companies.
Why it Matters: High-yield, low-payout ratio stocks outperformed high-yield, high-payout ratio stocks by 8.2 percentage points per year from 1990 to 2006. Source: High Yield, Low Payout by Barefoot, Patel, & Yao, page 3
Comparison 4: Growth Rate
Clorox has grown revenue per share by about 4.5% per year over the last decade, giving it the 64th highest growth rate, out of 120. Kimberly-Clark has fared slightly better, growing revenue by about 5.3% per year which is the 53rd highest out of 120. Kimberly-Clark outperforms Clorox based on per share revenue growth.
Why it Matters: Growing dividend stocks have outperformed stocks with unchanging dividends by 2.4 percentage points per year from 1972 to 2013. Source: Rising Dividends Fund, Oppenheimer, page 4
Comparison 5: Volatility
Kimberly-Clark has the 6th lowest standard deviation out of the 120 stocks with 25+ years of dividend payments without a reduction. Clorox also has an exceptionally low standard deviation; the 8th lowest out of 120.
Why it Matters: The S&P Low Volatility index outperformed the S&P 500 by 2 percentage points per year for the 20-year period ending September 30th, 2011. Source: Low & Slow Could Win the Race, page 3
Kimberly-Clark and Clorox are very similar businesses, with a correlation of .98. They both have a long history of rewarding shareholders through increasing dividends and share repurchases. They both sell strong consumer brand products globally. They also both have extremely low standard deviations due to stable cash flows.
The difference between the two is Kimberly-Clark has been able to grow revenue per share faster than Clorox, and is likely to continue to do so. In addition, Kimberly-Clark is slightly cheaper than Clorox based on the P/E ratio. Kimberly-Clark ranks at 11 based on the 8 Rules of Dividend Investing, while Clorox ranks at 18. Both businesses have favorable long-term prospects and make sound dividend growth investments.