When you hear the name Clorox (CLX), you might be more likely to think bleach than dividend growth.
Clorox was in the news Wednesday following its first-quarter report, which showed earnings before items of $1.04 a share and sales of $1.34 billion. On average, analysts surveyed by FactSet were looking for an adjusted profit of 96 cents and a top line of $1.35 billion. In the year-earlier period, Clorox had a profit, excluding items, of $1.01 a share and sales of $1.31 billion.
Growth on the revenue and earnings lines hasn't been particularly overwhelming, and that was the case again this quarter. FactSet has a five-year compound annual growth rate for sales at 2.4%, and for net income it's 1.8%. For fiscal 2013, Clorox is projecting sales growth of 2% to 4% with earnings of $4.20 to $4.35, compared with $4.24 in the latest fiscal year. Not exactly lighting it up.
However, despite those somewhat muted metrics, Clorox has been a generally comfortable place to be. (Plus, it's much less volatile than the market, with a beta of 0.37, according to Yahoo! Finance data.)
Shares of Clorox closed at $44.93 on Oct. 31, 2002, and rose to $72.10 on Oct. 26 this year. It's obviously no Apple (AAPL), but that's an increase of about 60.5%. Add in the dividend, and the total gain is 96.7%.
Clorox isn't likely to ever display blistering growth -- along with the aforementioned bleach, its products include Pine-Sol cleaner, Fresh Step cat litter and Glad trash bags -- and the CAGR for the stock in the past decade is 4.84%. What it is though is another one of those household names, with goods that sell in about any economy, that's at least trying to reward shareholders for their loyalty.
Here's how. The dividend yield is currently 3.6%, but it's worth an even deeper look to get a sense of how investors have benefited. An article on Seeking Alpha regarding dividend stocks pointed out the value of examining not just high yield and low price-to-earnings ratios, but other factors, including the rate at which a company is raising its payment and how consistently it does so. The article explores the idea of looking at the compound quarterly dividend growth rate to gauge the strength of the dividend. One of the stocks mentioned is Clorox, and in its case, that rate is 2.71% going back 40 quarters.
Of course, companies known for raising dividends mainly do so annually, not quarterly. In other words, for three quarters of every year, the dividend likely won't change, so one might view the metric as having limited value. Nonetheless, it does offer an interesting comparison with other dividend-paying stocks when undertaking research. Still, the annual compound growth rate is simple enough to calculate and is useful when studying and comparing dividend stocks. Measuring the dividend increases at Clorox on an annual basis produces compound annual growth of 9.73% in the past decade, climbing from 98 cents to $2.48.
For comparison, the SA article examines two other consumer stocks, Coca-Cola (KO) and McDonald's (MCD). Coke, using both the quarterly and annual compound measures, trails Clorox with 2.12% quarterly dividend growth and 8.77% on a full-year basis. Going back to the start of 2003, it paid 22 cents a quarter, and this year, it's up to 51 cents on an unadjusted basis. (Because of Coke's 2-for-1 stock split this year, the rate is now 25.5 cents.)
Overall, the cola seller's stock has risen 59% in the past 10 years, and including the dividend, each share is up 90.4%. In brief, it's behind Clorox in all those categories, but Coke does have the advantage of having raised its dividends annually for half a century.
An Even Better Rate
What about closer competitors to Clorox? Procter & Gamble (PG), which operates in the same area but that has 20 times the market cap, is another dividend-raiser. Like Coke, it has been for decades, having gone from 21 cents a share in the first quarter of 2003 to 56.2 cents now. Using the SA guidance, that would equate to a 2.49% compound rate quarterly over 10 years and 9.65% annual growth -- again trailing Clorox. Shares of P&G are up 57% since Halloween 2002, with a 90.8% return including dividends. As a reminder, Clorox wins here, too.
Clorox hangs in there, but another similar company, Colgate-Palmolive, (CL) also likes to lift its dividend regularly, and it shines even brighter. Its dividend has gone from 18 cents in the first quarter of 2003 to 62 cents currently. That's a 3.14% compound rate quarterly in a decade, and a 10.49% annual growth rate. Colgate's shares have risen 88.9% in the past 10 years, and with the dividends, the stock has returned 117.4%.
Dividend growth rates aren't the whole story with an investment, whether that's Clorox or Coke or anyone else. It's part of it -- though it is only one part. But these rates can provide an added perspective when choosing among dividend-paying stocks. It's something quick and, even better, informative that might work well with those hiding-in-plain-sight names like Clorox.
- Investment & Company Information