Clorox Boosts Quarterly Dividend - Analyst Blog

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Amid the prevailing economic uncertainties, investors are always on the look out for the best possible return from stocks in their portfolio. In a bid to boost shareholder return, The Clorox Company ( CLX ) recently increased its quarterly dividend by 6.7% or 4 cents to 64 cents per share. Earlier, the company used to pay 60 cents per share.

The increased dividend will be paid on August 10, 2012 to the shareholders of record as of July 25, 2012. The annualized dividend yield based on the increased dividend and current stock price is 3.7%.

Previously, on May 18, 2011, Clorox raised its dividend to 60 cents from 55 cents per share, reflecting an increase of 9%.


Dividend increase has emerged as a trend among companies having a stable cash position and healthy cash flow. The dividend hike not only enhances shareholders' return but also raise the market value of the stock.

Following the same trend, Clorox raised its dividend on the anticipation of higher free cash flow generation. Clorox expects to generate free cash flow of about 9% to 10% of sales during fiscal 2012 and 2013. Moreover, the company's assertion of increase in dividend clearly signifies the ability to generate liquidity and its potential to improve in the long-run.

Recently, the company posted better-than-expected results for the third-quarter of 2012. The quarterly earnings came in at $1.05 per share compared with $1.03 per share in the comparable period last year. The quarterly earnings also beat the Zacks Consensus Estimate of $1.03 per share.

During the quarter, the company's earnings benefited from the ongoing cost-saving initiatives and price increases, while higher raw material, manufacturing and logistics costs, poor product and country mix, and spending on Information Technology (IT) systems and research & development (R&D) facilities were minor deterrents.

Guidance

Looking ahead, the company adjusted its annual sales growth guidance for fiscal 2012 to 4%, against the company's previous guidance range of 2% - 4%. The revised guidance reflected improvement in the U.S. categories as well as robust results on the back of innovation, price increase and merchandising initiatives. Clorox continues to anticipate annual earnings of $4.00 to $4.10 per share in fiscal 2012.

Additionally, the company also provided its fiscal 2013 guidance, projecting sales growth in the range of 2% - 4%. The company expects cost containment efforts and price hikes to offset increasing commodities and other manufacturing costs. The company anticipates fiscal 2013 earnings per share to be in the range of $4.20 - $4.35.

Closing Comment

Clorox making intensive capital investments in information technology systems and capabilities, particularly in the international market and R&D facilities to boost productivity while providing platforms for growth, product innovation and cost savings. The company believes that these initiatives will begin delivering benefits later in fiscal 2014 and beyond.

Clorox's financial performance may be substantially affected in the short term due to its significant presence in international market (approximately 21% of revenue), which exposes it to unfavorable foreign currency translations, economic or political instability and other governmental actions on trade and repatriation of foreign profits.

Most of the company's products compete with other widely advertised brands within each product category and private label brands and generic non-branded products of grocery chains and wholesale cooperatives in certain categories, which typically are sold at lower prices. The main competitors of Clorox are Colgate-Palmolive Company ( CL ) and Procter and Gamble Company ( PG ).

Therefore, the shares carry a Zacks #4 Rank implying short-term 'Sell' rating. We remain Neutral on a long term basis.


 
COLGATE PALMOLI (CL): Free Stock Analysis Report
 
CLOROX CO (CLX): Free Stock Analysis Report
 
PROCTER & GAMBL (PG): Free Stock Analysis Report
 
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: CL , CLX , IT , PG

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