Friday, April 08, 2011

Clorox -- A Clean Company

Clorox has a plan for the growth of its business as well as a plan for the growth of its dividend. The combination should interest investors who want a stock offering both stock-price growth and rising income. There's an added bonus. This company looks like a company Warren Buffett would coonsider owning. However, from Buffett's perspective, the biggest shortcoming of Clorox is its level of debt. But the company has the power to reduce debt and increase equity.

Clorox Dividend Stock Analysis

by: Dividend Growth Investor April 08, 2011

The Clorox Company (CLX) manufactures, markets, and sells consumer products in the United States and around the world. The company operates through four segments: Cleaning, Lifestyle, Household, and International. The company is a dividend aristocrat. It has increased distributions every year for the last 33 years. The most recent dividend increase was in January, when the Board of Directors approved a 6.40% increase to 25 cents/share. The major competitors of Clorox include Procter & Gamble (PG), Colgate-Palmolive (CL) and Church & Dwight (CHD).

Over the past decade this dividend stock has delivered an annualized total return of 8.60%.

The company has delivered an impressive increase in EPS of 13.50% per year since 2001. Analysts expect Clorox to earn $3.95 per share in 2011, and $4.43 per share in 2012. This would be a nice increase from the $4.24/share the company earned in 2010. Meanwhile, the company has decreased the number of shares outstanding by 6.70% per year over the past decade through share buybacks, which have improved earnings per share growth.

In 2007 the company introduced its Centennial Strategy, which aims for double-digit annual growth in economic profit. A key driver of the strategy is to accelerate sales by growing existing brands, expanding into adjacent product categories, entering new sales channels and increasing penetration within existing countries. The company also anticipates using its strong cash flow to pursue growth opportunities and increase shareholder returns.

The company intends to deliver further growth through an ongoing focus on consumer megatrends. In addition, the company is targeting 2% sales growth through product innovation. The company projects sales growth of 3-5 percent, excluding acquisitions and expansion into new geographies through 2013. Last but not least, Clorox will target margin expansion and maximizing cash flow through a continued robust cost-saving program while sticking with recently made price increases.

Since 2003, the return on assets has largely remained above 11%. Return on assets is the best measure because stockholders equity was negative after a transaction in 2004in which Clorox exchanged its ownership in a subsidiary for approximately 29% of the company’s outstanding shares.

The annual dividend payment has increased by 10.10% per year since 2001, which is lower than the growth in EPS.

A 10% growth in distributions translates into the dividend payment doubling every 7 years. If we look at historical data, going as far back as 1983, we see that Clorox has indeed managed to double its dividend every seven years on average.

Moreover, during the past decade the dividend payout has remained below 50% of net income. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.

Currently Clorox is trading at 16.80 times earnings, yields 3.20% and has a sustainable dividend payout.

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