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Clorox to Return More to Shareholders on Tax Reform Benefits

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The Clorox Company (CLX - Free Report) being a beneficiary of the recent tax reform, is looking forward to share the benefits with its shareholders. As a result, it accelerated the declaration of dividend increase, which usually occurs in May. The company also remains keen on using the benefits from the tax reform to support long-term business growth as well as enhance shareholder returns.

Notably, Clorox raised its quarterly dividend by nearly 14% to 96 cents per share from 84 cents. On May 8, 2017, the company had raised its dividend by 5% to 84 cents per share from 80 cents.

The new dividend is payable on May 11, 2018, to shareholders on record as of April 25. Thereby, bringing the company’s annualized dividend rate to $3.84 per share, yielding 2.98% based on the current stock price.

In fact, Clorox has been enhancing shareholder return from time to time. This is evident from its track record of consistently raising dividends since 1977. Notably, the company’s total shareholder returns for the last three fiscal years sums to 58% compared with 37% for its peer group and 31% for the S&P 500.

We believe that Clorox’s consistent dividend payments and increments reflect growth potential of the company’s earnings as well as its cash flow generation capabilities.

Per second-quarter fiscal 2018 release, the company anticipates the new tax reform to boost its earnings and cash flows. This was well reflected in the previous guidance raise for fiscal 2018 earnings. Clorox also raised its long-term free cash flow target, under the 2020 Strategy.  It now expects to generate free cash flow, as a percentage of sales, in the range of 11-13% (on a yearly basis) compared with 10-12% projected earlier.

Clearly, the company’s disciplined approach to cash allocation facilitates returning excess cash to shareholders. Clorox currently carries a Zacks Rank #2 (Buy).

The news did not have a major impact on the company’s share price movement. However, the stock has lost 5.7% in the last six months, outperforming industry’s decline of 8.7%.

We believe that dividend hikes not only enhance shareholder return but raise the market value of the stock as well. Through dividend increases, companies persuade investors to either buy or hold the scrip instead of selling them. Looking ahead, Clorox remains confident of its long-term growth potential, suggesting enhanced value for shareholders via dividend payout.

Looking for More Promising Bets? Check These

Some other top-ranked stocks in the same sector are Estee Lauder Companies Inc. (EL - Free Report) , Kimberly-Clark Corporation (KMB - Free Report) and Lamb Weston Holdings Inc. (LW - Free Report) , each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Estee Lauder delivered an average positive earnings surprise of 18% for the trailing four quarters. It has a long-term earnings growth rate of 12.9%.

Kimberly-Clark’s average positive earnings surprise is 1.9% for the trailing four quarters. The stock has a long-term earnings growth rate of 7.9%.

Lamb Weston pulled off a positive average earnings surprise of 7.8%. The company has a long-term earnings growth rate of 12%.

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