Companies that have increased their dividends for 25 years or more — known as dividend aristocrats — are great places to start looking for steady income investments.
While there are over 50 dividend aristocrats, not all are created equal. Some of the largest dividend aristocrats only offer yields that barely cover the rate of inflation. For example, Walgreen, Medtronic’s and Lowe’s all offer dividend yields below 2%.
One aristocrat offers a superior yield and has 36 years of dividend hikes. Clorox (NYSE: CLX) is part of the dividend aristocrat club, but also one of the most underrated, being overshadowed by the likes of Procter & Gamble (NYSE: PG) and Colgate-Palmolive (NYSE: CL), both of which are also dividend aristocrats.
Clorox’s dividend yield is 3.3% and it has grown its dividend payment at an annualized 9% over the last five years. That’s nearly double the industry average growth rate.
Billionaire Carl Icahn offered to buy Clorox for $80 a share back in 2011 before throwing in the towel. Shares of the consumer products company finally broke above $80 a share last year and now trades just over $90.
Since its spinoff from Procter & Gamble in 1969, Clorox has expanded into a diversified products company.
Clorox is known for its liquid bleach, which accounted for 14% of sales last year. As well, trash bags accounted for 13% and charcoal 10%. Its two major segments include cleaning and household products, collectively accounting for 68% of pre-tax profits.
Major brands include Formula 409, Pine-Sol, GreenWorks, Glad, and Kingsford and Match Light charcoal. Clorox’s diversified brand portfolio helps insulate it from a weak economy.
While 80% of revenues are generated in the U.S., it is making strides in international markets.
The likes of Procter & Gamble has been focusing on China and Brazil, but Clorox has turned its focus to the Middle East and other Asian countries besides China. Clorox’s focus markets have less competition, but also have a strengthening middle class and strong population growth.
As mentioned, many investors turn to the larger cap companies when investing in consumer products. Which includes Procter & Gamble and Colgate-Palmolive (NYSE: CL), having market caps of $215 billion and $62 billion, respectively. Compared to Clorox’s $11.7 billion.
However, Clorox has increased its dividend payment at a higher rate than the other two over the last three years. While Clorox trades in line with the industry and its major peers on a P/E basis, it trades at the lowest enterprise value-to-earnings before interest taxes depreciation amortization (EV/EBITDA) and price-to-free cash flow (P/FCF) multiples among the three.
Its leverage ratio is within the company’s target range. Clorox’s debt-to-earnings before interest, taxes, depreciation and amortization (EBITDA) was 2.2 of the last quarter. Its target range is 2 to 2.5.
Being a dividend aristocrat doesn’t automatically make a stock a shareholder friendly company.
But Clorox is one of the most shareholder friendly companies in the market, not to mention the consumer products industry. Over the last decade it has increased its dividend payment by 163% and lowered its shares outstanding by 40%
Investing in a company simply because it has increased its dividend payment for 36 straight years isn’t a prudent investment strategy. However, a stock that offers a 3.3% dividend yield (while the S&P 500 average yield is 1.9%) is a great place to start. Especially when it’s growing its dividend payment faster than other companies.
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