Clorox's Near 5% Dividend Yield Is Getting Hard To Ignore
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Most of us are familiar with the iconic brand, The Clorox Company (CLX). The company has been around for more than a century, and many of us use their products daily without even realizing it. Yet despite its household-name, Clorox’s share price has struggled in recent years.
Even when zooming out over a five-year window, CLX has been a disappointing investment. But with a near 5% dividend yield and a compressed valuation, long-term investors may find the stock worth considering.
Clorox: A Brief Overview 🧼
Clorox has been on my watchlist for several years. Founded in 1913 and publicly traded since 1928, the company owns many household brands that consumers purchase on autopilot:
• Clorox Bleach & Wipes
• GLAD trash bags
• Brita
• Burt’s Bees
• Pine-Sol
Clorox operates in four key segments: Health & Wellness, Household, Lifestyle, and International.
While the business remains stable and widely used, the stock’s performance tells a different story.
A Disappointing Investment 📈
Over the past year, Clorox shares have fallen more than 38%, far underperforming the broader market. Over the last five years, the stock has dropped nearly 48%, largely unwinding the pandemic-era valuation bubble.
During 2020, demand for cleaning products surged and CLX traded near $240—a level that was never sustainable once pandemic tailwinds faded.
Since then, the company has faced several headwinds:
• Tariffs and inflation
• Shifting consumer behavior
• Divestiture of its Argentina business
• A 2023 cyberattack
• Ongoing digital transformation and ERP rollout
Despite these challenges, FY25 wasn’t all bad. While sales were flat, margins improved, and earnings per share grew 25% to $7.72. Gross margins expanded 220 bps, and free cash flow increased as well.
But FY26 appears to tell a very different story.
A Bleak Fiscal 2026 Outlook 📆
Clorox reported Q1 FY26 results last month and beat expectations on both revenue and earnings:
• Revenue: $1.43B (beat by $30M)
• EPS: $0.85 (beat by $0.07)
However, both metrics were sharply down from the prior year. Revenue declined from $1.76B, and EPS dropped from $1.86.
Two major factors are expected to weigh on results this year:
1. The sale of the Better Health VMS business, reducing revenue and profit contributions.
2. The ERP transformation, which benefited them last year but will now create first-half pressure as the system stabilizes.
Management expects improvement in the back half of FY26 as consumption increases and market share strengthens. Still, full-year guidance remains weak:
• Sales expected to decline 6%–10%
• Gross margins expected to contract 50–100 bps
• EPS expected to decline ~21% (midpoint guidance: $6.125)
Notably, peer Church & Dwight (CHD) expects 1.5% sales growth, further highlighting CLX’s relative weakness.
Management continues to frame FY26 as a temporary setback, but macro conditions may limit upside in the near term.
Dividend & Balance Sheet: Stability With Constraints ⚖️
Clorox’s July dividend raise was lackluster—just 1.6% or $0.02 per share.
Prior to COVID, dividend growth was much stronger, but recent increases have slowed as the company prioritizes transformation spending.
Even so, the dividend remains appealing:
• Yield: ~4.6%
• Above the S&P 500 avg (1%–2%)
• Above the consumer staples avg (3.24%)
• Above CLX’s 5-year average (3.15%)
Free cash flow coverage remains adequate:
• FCF (FY25): $761M
• Dividends paid: $602M
• Payout ratio: ~79%
While the payout ratio is higher than ideal for a consumer staple, it is not dangerously high in my opinion.
The balance sheet is in solid shape:
• Long-term debt: ~$2.5B
• Cash: $166M
• Revolving credit capacity: $1.5B
• Upcoming maturities: $90M in both 2026 & 2027
• Investment-grade credit ratings across agencies
From a financial stability standpoint, Clorox remains sound.
Upside Potential: Meaningful, But Not Immediate 📉
At today’s valuation, CLX trades at a forward P/E of 17.3x—well below its long-term average. If the company can resume growth post-FY26, the stock could re-rate meaningfully higher.
Based on current long-term projections, Clorox could reach a price target of:
• $153 by FY28
• Representing ~44% upside from ~$106 today
However:
• Near-term upside is likely limited
• FY26 volatility could persist
• Macroeconomic weakness could further delay recovery
For long-term dividend investors, I think dips below $100 present the most attractive entry point.
Risks to Consider ⚠️
Macro uncertainty remains the biggest overhang for Clorox. Rising unemployment and potential recession risks could push consumers toward private-label alternatives.
Key risks include:
• Margin compression
• Declining volumes
• Loss of market share
• Prolonged ERP disruption
• Slower-than-expected recovery
If a downturn occurs, earnings and the stock price could face renewed pressure before fundamentals stabilize.
Bottom Line ✅
Despite near- to medium-term headwinds, I remain optimistic about Clorox’s long-term potential. The company’s digital transformation and ongoing product innovation could drive meaningful value over time.
At its current valuation, CLX offers:
• A nearly 5% dividend yield
• A reasonable earnings multiple
• Long-term upside nearing 40%+ once growth resumes
But patience is required. I expect stabilization to occur late 2026 into 2027, with limited near-term upside until margins and earnings regain momentum.
Until then, Clorox offers a compelling dividend play for long-term investors willing to weather short-term volatility.
What do you think?
Happy Investing!
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Not financial advice. For educational purposes only. I am not a licensed professional. Do your own due diligence.
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