The Clorox Company (CLX - Free Report) is cheering investors by enhancing shareholder returns at a time when most companies are suspending dividends and share repurchases due to the hardships posed by the coronavirus outbreak. The company announced the 51st successive quarterly dividend hike. It will now pay out a dividend of $1.11 per share, suggesting a 5% rise from the prior rate of $1.06. The increased dividend will be paid out on Aug 14 to shareholders of record as of Jul 29, 2020.
The latest dividend hike of 5% brings its annualized dividend to $4.24 per share versus the prior rate of $3.84. Notably, the company has a five-year annualized dividend growth rate of 8.2%, reflecting dividend increases for five consecutive years. Based on its share price of $201.72 on May 19, Clorox currently has a dividend yield of 2.1%. Moreover, the company’s current dividend payout ratio is 62.2%.
Dividend payouts are the biggest enticement for investors and Clorox is committed to boosting shareholders’ wealth. Notably, it is a windows-and-orphan stock, with a long history of regular reliable dividends. In fiscal 2019, the company paid out $490 million of dividends to shareholders.
The latest hike also reflects Clorox’s solid cash position that is used to return value to shareholders (through higher dividends and regular buybacks) as well as reinvesting in the business. With an annual free cash flow return on investment of 31.3%, ahead of the industry’s 21%, the increased dividend is likely to be sustainable. The company recorded free cash flow of $786 million in fiscal 2019, up 0.5% from the prior year.
Stock Soars in 3 Months
Clorox’s focus on innovation, a sudden rise in demand for disinfecting products stemming from the COVID-19 situation and IGNITE strategy places it well for the future. We note that shares of the company have advanced 22.9% in the past three months against the industry’s decline of 8.4%.
The stock has also comfortably outperformed the Consumer Staples sector and the S&P 500 index, which have lost 15.6% and 12.4%, respectively, in the past three months. Further, the stock is hovering close to its 52-week high of $214.26.
Given these dynamics, we see no reason why Clorox, with a long-term earnings growth rate of 5.8%, cannot outperform the 52-week-high mark in the near term.
The company experienced broad-based growth at all four segments in the last reported quarter, as it catered well to consumers’ strong demand for disinfecting products in the wake of the coronavirus outbreak. Encouragingly, it now projects sales growth of 4-6% compared with the prior estimation of a low-single-digit decline to a 1% rise. The raised guidance reflects expectations of favorable COVID-19 impacts. Also, higher product demand on robust customer plans and innovation will aid performance. Further, the company now expects organic sales growth of 6-8% versus the prior anticipation of flat to up 2%.
Moreover, it remains on track with the IGNITE strategy aimed at expansion of the key elements under the 2020 Strategy to pace up innovation in each area of business. The IGNITE strategy mainly binds Clorox on four strategic areas — fuel growth through brand reinvestments, innovate to deliver enhanced customer experience, develop product portfolio and re-imagine the company’s operations. Driven by this, management expects to achieve long-term financial targets, including net sales growth of 2-4%, EBIT margin expansion of 25-50 basis points (bps) and free cash flow generation to be 11-13% of sales.
Additionally, Clorox aims at higher cost savings annually by emphasizing more on technology and integrated design. With this, it expects to achieve EBIT margin expansion of 175 basis points annually. Such cost-saving and pricing actions should continue to support its investment in long-term brands and category growth.
Clorox’s impressive fundamentals and strong footing in the industry along with a solid portfolio make it a favored stock. It draws further investor attention through its regular dividend payouts and commitment to enhance shareholder returns. The stock carries a Zacks Rank #1 (Strong Buy).
Other Stocks to Consider
The J.M. Smucker Company (SJM - Free Report) has an expected long-term earnings growth rate of 2.2% and a Zacks Rank #1.You can see the complete list of today’s Zacks #1 Rank stocks here.
Church & Dwight Co., Inc. (CHD - Free Report) has an expected long-term earnings growth rate of 8.2% and a Zacks Rank #2 (Buy).
General Mills (GIS - Free Report) is also a Zacks Rank #2 stock, which has a long-term earnings growth rate of 7.5%.
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