This is Why Clorox (CLX) is a Great Dividend Stock
Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
While cash flow can come from bond interest or interest from other types of investments, income investors hone in on dividends. A dividend is that coveted distribution of a company's earnings paid out to shareholders, and investors often view it by its dividend yield, a metric that measures the dividend as a percent of the current stock price. Many academic studies show that dividends account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
Clorox in Focus
Based in Oakland, Clorox (CLX) is in the Consumer Staples sector, and so far this year, shares have seen a price change of 43.74%. The consumer products maker is paying out a dividend of $1.11 per share at the moment, with a dividend yield of 2.01% compared to the Soap and Cleaning Materials industry's yield of 1.86% and the S&P 500's yield of 1.64%.
In terms of dividend growth, the company's current annualized dividend of $4.44 is up 4.7% from last year. In the past five-year period, Clorox has increased its dividend 4 times on a year-over-year basis for an average annual increase of 8.36%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm's annual earnings per share that it pays out as a dividend. Clorox's current payout ratio is 58%, meaning it paid out 58% of its trailing 12-month EPS as dividend.
CLX is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2020 is $7.76 per share, which represents a year-over-year growth rate of 5.43%.
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. But, not every company offers a quarterly payout.
Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. Income investors have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, CLX is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).
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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 Nasdaq, Inc.