Entering text into the input field will update the search result below

Clorox: Discomforting Thoughts On The Dividend

May 03, 2022 10:03 AM ETThe Clorox Company (CLX)VNSE, RSPS, UGE, VSMV, TMDV, KVLE, UPRO29 Comments
Deep Value Ideas profile picture
Deep Value Ideas


  • Clorox is a highly profitable and well-managed company. This is underscored by consistently high margins, excellent working capital management, and return on invested capital.
  • Due to inflationary pressures and pandemic-related excess capacities, the company's gross margin has fallen dramatically.
  • Free cash flow followed suit and is now barely able to cover the dividend.
  • The company will likely need to tap the capital markets to bolster its near-term cash flow, in addition to refinancing more than $1 billion over the next 18 months at potentially unfavorable rates.
  • It will take a few years for the issues to resolve, and investors will likely continue to scrutinize Clorox's premium valuation.

Clorox Co Shares Jump, After Investor Ichahn Reports Stake In Company

Justin Sullivan/Getty Images News

The Clorox Company (NYSE:CLX), best known for its disinfecting and bleaching products, reported third-quarter 2022 results after the market close on May 2. Over the last quarters, the company’s gross margin has declined sharply from its long-term average of 44%, down to around

This article was written by

Deep Value Ideas profile picture
Tired of effortful investing strategies with uncertain prospects? As a former deep value investor, I learned to appreciate the benefits of a dividend-focused value strategy several years ago. My strategy puts an emphasis on capital preservation and steadily growing income. I write primarily about stocks I hold in my diversified dividend stock portfolio, which emphasizes high-quality value stocks that offer meaningful growth and long-term safety. Feel free to reach out to me via direct messaging here, on Twitter, or through the comments section of one of my articles. Hit the “Follow” button if you'd like to join me on my journey to financial independence.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such 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.

The content is for informational purposes only and may not be considered investment advice. It is not my intention to give financial advice and I am in no way qualified to do so. I cannot be held responsible and accept no liability whatsoever for any errors, omissions, or for consequences resulting from the enclosed information. The writing reflects my personal opinion at the time of writing. If you intend to invest in the stocks mentioned in this article – or in any form of investment vehicle generally – please consult your licensed investment advisor.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

Comments (29)

Cramer says buy CLX.... Anybody here listen to Cramer?
Deep Value Ideas profile picture
@Frank Investor It's always best to do your own due diligence. I don't think Clorox is a good value at $150. In terms of its dividend yield, yes, but it's overvalued by all other metrics. The dividend will likely continue to grow very slowly, assuming we are in for a couple of years with considerably high inflation.
@Deep Value Ideas I agree it is not a buy at $150, but it's not going to $120 as some predict. The dividend will not be cut.
Deep Value Ideas profile picture
@Frank Investor I agree, and I am even quite confident that Clorox will not give up its status as a dividend aristocrat lightly. That's one great thing about the U.S. - European companies are much faster at cutting their dividend and shareholders of European companies don't enjoy the high status they do in most U.S-based companies.
doobiedoo profile picture
I think PG Procter & Gamble is a better company.
Deep Value Ideas profile picture
@doobiedoo I totally agree - but it's certainly also a much bigger company which navigates the current waters much easier. Sadly though, PG is quite expensive at the moment.
Marrk profile picture
Thanks for the article.

Today, Jim Cramer said that CLX had a great quarter and has terrific management. I take that as a sign that CLX is tanking.

Holding CLX
Deep Value Ideas profile picture
@Marrk You are welcome, thanks for reading.

I agree, Cramer is a contra-indicator. While you might be right that CLX has further to fall, considering its comparatively weak bargaining position as a smaller company, I believe it will be allright in the long run. If I had bought it somewhere below $100, sitting on a yield on cost of 4% or more, I would be comfortable holding it. Selling it, just to move the funds into another staples company seems difficult, as the whole industry is richly valued right now.
I have been a long term investor in CLX (several decades).
Whether CLX can meet their dividend distribution or not, they should and could be in a much better position.
None of CLX peers had such an extensive destruction of value/wealth in such a short time.
Look at CLX last annual report.
It is a WOKE culture manifesto. The mgmt. should leave their societal preferences at the door and concentrate instead on their Gross Margins "MG".
If the mgmt. is unwilling or incapable to do the above, they should be shown the door.
Deep Value Ideas profile picture
@hk2233 Thanks for your comment. In fairness, I would add to your statement that while management could have certainly done better concentrating on the core business, the excess capacities built up during the pandemic are a drag that could have hardly been avoided with Clorox being a relatively small company. Larger companies benefit from fixed cost synergies, economies of scale and better bargaining power with suppliers.
@hk2233 Woke Derangement Syndrome sufferers are not good investors.
@toodles hmmm....any evidence to support such a statement?
Great article. Even though I do not own CLX I came to read and learn more about your way of analysing a company. Always interesting. Thanks.
Deep Value Ideas profile picture
@Pardonmyfrench Thanks for the kind words - that's highly motivating. Glad you found the article and my way of analyzing a company interesting.
Is that why CLX is up 3% so far today?
Deep Value Ideas profile picture
@Frank Investor With that, do you mean the fact that they did not announce a dividend cut? If so, I doubt it - the small pop was likely due to the somewhat positive news related to margin improvement.
DanTheMan1984 profile picture
This is total fear driven article CLX is at no risk at cutting there dividend
Deep Value Ideas profile picture
@DanTheMan1984 That CLX is highly unlikely to cut its dividend is what I am discussing in my article.
On the fence right now about adding more.

Retired dividend-growth investor
Deep Value Ideas profile picture
@usiah For a staples business, the valuation in terms of dividend yield appears okay. However, from the perspective of P/E, EV/EBITDA, DCF, etc., Clorox appears overvalued when taking into account the most recent results. I think it's overly conservative to assume that current earnings are indicative of the long-term future of the business. Clorox is a highly profitable company that is currently experiencing a few bad quarters/years.
@Deep Value Ideas

Thanks. My feeling as well.
They better not. They should fire the CEO and get someone else in there who knows how to run the business! She reminds me of the woman they hired at IBM who drove the business straight into the ground missing year after year! Longz CLX! :-)
Deep Value Ideas profile picture
@magenta17 I doubt they will. In terms of profitability, I do not consider CLX a badly managed company.
Willow Street Investments profile picture
I find it unlikely the dividend will be cut...CLX was put in an awful position due to US govt stupidity in its monetary policy.
Deep Value Ideas profile picture
@Willow Street Investments I also consider it unlikely. To a large extent, however, I believe that Clorox's problems are due to the excess capacities built to meet demand during the pandemic. Larger companies such as CL and PG operate much easier in this regard.
grayhat profile picture
@Willow Street Investments Agree, very unlikely.
Willow Street Investments profile picture
@Deep Value Ideas I remember when UPS borrowed 2 billion to pay its dividend in the 2008-09 financial crisis. Dividends are in doubt if ongoing business cannot support it for too long a period.
Disagree with this article? Submit your own. To report a factual error in this article, . Your feedback matters to us!

About CLX

SymbolLast Price% Chg
Market Cap
Yield (TTM)
Rev Growth (YoY)
Short Interest
Prev. Close
Compare to Peers

More on CLX

Related Stocks

SymbolLast Price% Chg
To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.