'FANG,' Meet Your Low-Volatility Cousin: 'ROCK' - Part 3

| About: The Clorox (CLX)

Summary

I created a group of stocks with low volatility using the acronym "ROCK".

Each selection has low volatility, a higher dividend yield than the S&P 500 and a long history of dividend growth, and has outperformed the S&P 500.

This is part three, where I focus on the "C" in "ROCK".

This is the third article in my series covering my new group of low volatility stocks collectively known by the acronym "ROCK". As I noted in my first article, I selected stocks using a number of fundamental factors like low volatility, dividend size and dividend-growth. Specifically, to be considered for my group the stock must be classified as low volatility, have a dividend yield higher than the S&P 500 and have at least ten consecutive years of dividend increases. In addition to those criteria, potential candidates must have outperformed the S&P 500 over the last 1, 3 & 5 year periods.

Part 1: The "R" in Rock: Raytheon (NYSE:RTN)

Part 2: The "O" in Rock: Realty Income (NYSE:O)

Clorox: The "C" in "ROCK"

Clorox (NYSE:CLX) manufactures a wide range of household and food products that consumers most likely use at least one of daily. Clorox is widely known for its bleach, however as the following chart shows, Clorox is everywhere throughout your house, ranging from barbecue sauce in the fridge to charcoal briquettes in the barbeque outside and everywhere in between. The second chart below shows that Clorox is successfully growing e-commerce sales, which is important in the current retail landscape. For example, a number of products that Clorox sells are on the Amazon Dash button list. While the investor presentation does not give the sales figures, 50% growth over a three-year period is impressive.

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Clorox Brand Overview

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Clorox Investor Presentation

Clorox has a stable business because it has the best ROIC compared to its peer group and has a number of top rated brands throughout its portfolio. In addition, in the most recent earnings report Clorox painted a bright picture for the rest of 2016, by raising sales guidance from 0-1% to 1-2% and EPS guidance from $4.75-$4.90 to $4.85-$4.90.

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Clorox Investor Presentation

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Clorox Investor Presentation

Performance Data Table

1-Year Return

3-Year Return

5-year Return

SPY

0.24%

39.27%

80.54%

CLX

26.85%

76.65%

127.44%

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[Data in table is total return, from Dividendchannel.com]

Clorox performance during worst stock market days

Since the beginning of 2015, there have been 11 days when the S&P 500 has fallen at least 2%. The average performance of the S&P 500 was down 2.58 vs. down 1.59% for Clorox. Out of those 11 big down days for the S&P 500, Clorox outperformed nine of the eleven days, therefore, Clorox has shown to be a place where investors can look to for safety on big down days in the market.

Date

% Return

Date

% Return

SPY

6/29/2015

-2.10%

CLX

6/29/2015

-2.41%

SPY

8/20/2015

-2.09%

CLX

8/20/2015

-0.37%

SPY

8/21/2015

-3.11%

CLX

8/21/2015

-1.51%

SPY

8/24/2015

-4.09%

CLX

8/24/2015

-3.87%

SPY

9/1/2015

-2.98%

CLX

9/1/2015

-2.11%

SPY

9/18/2015

-2.14%

CLX

9/18/2015

-0.54%

SPY

9/28/2015

-2.51%

CLX

9/28/2015

-1.74%

SPY

12/18/2015

-2.36%

CLX

12/18/2015

-3.27%

SPY

1/7/2016

-2.40%

CLX

1/7/2016

-1.09%

SPY

1/13/2016

-2.49%

CLX

1/13/2016

-0.22%

SPY

1/15/2016

-2.12%

CLX

1/15/2016

-0.36%

Average

-2.58%

Average

-1.59%

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Clorox Dividend

Currently shares of Clorox have a 2.39% yield, which is slightly higher than the 2.07% yield on the S&P 500. Clorox has had a steadily increasing dividend over the last 30+ years and with the stable nature of its business and the market share it holds in products that are needed daily, Clorox is set up to continue growing its dividend in the future. Like the other constituents of "ROCK", Clorox was able to increase its dividend during the financial crisis, which shows the strength of its business and its focus on products that are used daily by consumers.

Dividend Growth Potential

As you can see in the table below, Clorox has a weighted dividend growth rate of 5.21% and I expect the dividend to continue growing over the next 5 years. To determine if that rate of dividend growth is sustainable over the next five years, I conducted an analysis to see if dividends paid as a percentage of CFFO came in lower than my self-imposed threshold of 80%. For my calculations, I used the dividend growth rate of 5.21% and used projected long-term growth data from Zacks. The table below shows if Clorox continues growing its dividend at its current pace that it will continue to be well below my 80% threshold. Based on my estimates, by 2020, Clorox could be paying an annual dividend of $3.85/share or about $0.962/quarter, which is 24.89% above the current quarterly dividend.

Div Growth Rate

Weight

Div Rt*Weight

5 Yr

7.05%

20.00%

1.41%

3 Yr

5.76%

30.00%

1.73%

1 Yr

4.14%

50.00%

2.07%

Weighted Dividend Growth Rate

5.21%

Current Quarterly Dividend

0.77

Shares Outstanding

131.6

LT Growth Est. [Zacks]

7.14%

Calendar Year

Est. Div/Share

Shares

Divs $ Paid

Proj. CFFO

Proj. Div as % of Net Inc.

2016 est.

3.14

131.6

413.22

964.26

42.85%

2017 est.

3.30

131.6

434.74

1033.11

42.08%

2018 est.

3.48

131.6

457.37

1106.87

41.32%

2019 est.

3.66

131.6

481.18

1185.90

40.58%

2020 est.

3.85

131.6

506.23

1270.58

39.84%

`

2020 Div

3.847

2020 Quarterly

0.962

Current Quarterly

0.770

% Dividend Upside

24.89%

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Closing Thoughts

In closing, Clorox is the third selection of my group of "ROCK" stocks that have low volatility, a high dividend and a history of dividend increases, and have outperformed the S&P 500 over the last 1, 3 & 5 years. Stay tuned for part 4 to find out what stock is the "K" in "ROCK" as well as an overview of the entire group.

Disclaimer: See here.

Disclosure: I/we 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.