Full Disclosure: At the time of this writing, I was long in CLX (0.5% of my Income Portfolio). I also held positions in CL, PG and KMB. See a list of all my income holdings here.
Company Description: The Clorox Company is a diversified producer of household cleaning, grocery and specialty food products is also a leading producer of natural personal care products.
Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description:
1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number
CLX is trading at a discount to 1.) and 3.) above. Since CLX's tangible book value is not meaningful, a Graham number can not be calculated. The stock is trading at a 12.5% discount to its calculated fair value of $76.31. CLX earned a Star in this section since it is trading at a fair value.
Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:
1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling 4-yr Div. > 15%
CLX earned two Stars in this section for 1.) and 3.) above. A Star was earned since the Free Cash Flow payout ratio was less than 60% and there were no negative Free Cash Flows over the last 10 years. CLX earned a Star for having an acceptable score in at least two of the four Key Metrics measured. The company has paid a cash dividend to shareholders every year since 1968 and has increased its dividend payments for 35 consecutive years.
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:
1. NPV MMA Diff.
2. Years to > MMA
CLX earned a Star in this section for its NPV MMA Diff. of the $1,753. This amount is in excess of the $500 target I look for in a stock that has increased dividends as long as CLX has. If CLX grows its dividend at 9.3% per year, it will take 2 years to equal a MMA yielding an estimated 20-year average rate of 3.71%. CLX earned a check for the Key Metric 'Years to >MMA' since its 2 years is less than the 5 year target.
Memberships and Peers: CLX is a member of the S&P 500, a Dividend Aristocrat and a member of the Broad Dividend Achievers™ Index. The company's peer group includes: Colgate-Palmolive (CL) with a 2.7% yield, Kimberly-Clark (KMB) with a 4.1% yield, Procter & Gamble (PG) with a 3.2% yield and WD-40 Company (WDFC) with a 2.7% yield.
Conclusion: CLX earned one Star in the Fair Value section, earned two Stars in the Dividend Analytical Data section and earned one Star in the Dividend Income vs. MMA section for a total of four Stars. This quantitatively ranks CLX as a 4 Star-Buy.
Using my D4L-PreScreen.xls model, I determined the share price would need to increase to $101.25 before CLX's NPV MMA Differential decreased to the $500 minimum that I look for in a stock with 35 years of consecutive dividend increases. At that price the stock would yield 2.17%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $500 NPV MMA Differential, the calculated rate is 5.3%. This dividend growth rate is well below the 9.3% used in this analysis, thus providing a margin of safety. CLX has a risk rating of 1.50 which classifies it as a low risk stock.
As a consumer goods company, CLX sells products with a stable demand that are generally not affected by changes in the economy. The company's presence in the natural home/personal care products arena through Burt's Bees and GreenWorks is viewed positively by environmentalists. CLX's strategy of building its share in mid-sized categories, expanding into foreign markets and focusing on brands with long-term growth potential should provide steady cash flows well into the future. Although the stock is trading below my calculated fair value of $76.31, I am hesitant to add to my position due to its Debt To Total Capital of 97%. I would like to see this number come down some before buying. For additional information, including the stock's dividend history, please refer to its data page.
Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.
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