We recently compiled a list of the 20 Worst Dividend Aristocrat Stocks According to Analysts. In this article, we are going to take a look at where The Clorox Company (NYSE:CLX) stands against the other dividend aristocrat stocks.
Dividend aristocrats are companies that have raised their dividend payouts for at least 25 consecutive years. Achieving and maintaining a dividend streak this long is a tough nut to crack. That is why, among the approximately 6,000 stocks listed on the NYSE and NASDAQ, only around 67 companies have earned the distinction of being called dividend aristocrats. This strong dividend growth track records imply that these companies were financially stable enough to sustain their payouts during two significant financial crises: the Great Financial Crisis of 2008 and the COVID-19 pandemic. Besides this, these companies have also shown strong performance relative to the broader market over the years. The Dividend Aristocrat Index has outperformed the wider market with lower volatility since its inception in 2005. Recently we covered the list of the 25 Best Dividend Aristocrats to Buy according to Wall Street analysts.
Analysts have closely observed the performance of dividend aristocrats in the past and in recent times. In a January 2019 blog post titled ‘Dividend Growth Strategies and Downside Protection’, Phillip Brzenk, global head of multi-asset indexes, analyzed how dividend growth strategies perform, particularly in times when the market experiences declines. He said that since the end of 1989, there have been six calendar years when the broader market posted negative performance. Interestingly, in each of these years, the Dividend Aristocrats outperformed the broader equity benchmark by an average of 13.28%. Moreover, they managed to achieve a positive total return in three of those challenging years. He further said, the aristocrats outperformed the market in 53% of instances, with an average outperformance of 0.16%, when their performance was observed on a monthly basis.
As mentioned above, dividend growth stocks have performed better than the overall market. Since its inception in 2005 up until September 2023, the dividend aristocrats index achieved a total return of 10.35%, surpassing the broader market’s return of 9.54% during the same timeframe. Additionally, the dividend aristocrats exhibited lower volatility, at 15.35%, compared to the market’s 16.31%. This indicates that the prices of these stocks are more stable and less prone to frequent changes, demonstrating their relative resilience.
That said, analysts are now turning their attention to different aspects of dividend investing. For taxable investors, dividends can be less favorable compared to share repurchases. Additionally, focusing on dividends limits diversification since around 60% of U.S. stocks and 40% of international stocks do not pay dividends. As a result, portfolios that emphasize dividends are significantly less diversified than those that do not consider dividends in their design. Less-diversified portfolios tend to be less efficient due to a higher potential range of returns without any corresponding increase in expected returns, assuming the exposure to common factors remains constant. Moreover, emphasizing dividends often leads to an overinvestment in U.S. equities, causing a home-country bias and further reducing diversification.
According to this analysis, dividends are a tax-efficient method for returning capital to shareholders. However, investors continue to favor these equities due to their solid performance and the reliable income they offer. Although dividend aristocrats are strong companies with consistent dividend growth, some are less favored by analysts due to factors like industry challenges, macroeconomic conditions, and specific business issues.
Our Methodology:
For our list, we scanned a list of the S&P 500 Dividend Aristocrats, companies that have raised their dividends for 25 consecutive years or more. We then ranked these stocks according to their average analyst ratings from Yahoo Finance, where a higher score signifies the worst rating. The “Recommendation Rating” is a way to assess stocks. It uses a scale from 1 to 5, with each number indicating a different recommendation:
1. Strong Buy
2. Buy
3. Hold
4. Underperform
5. Sell
From this ranking, we selected the stocks with scores of 3 or more.
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The Clorox Company (NYSE:CLX)
Average Analyst Rating Score: 3.2
The Clorox Company (NYSE:CLX) is a California-based manufacturer of consumer and professional products. The company currently offers a quarterly dividend of $1.20 per share and has a dividend yield of 3.59%, as recorded on June 14.
Last year, The Clorox Company (NYSE:CLX) suffered from cyberattacks and is still struggling with the aftermath. In fiscal Q3 2024, the company reported a 5% year-over-year decline in its sales at $1.81 billion. The decrease was primarily due to lower volume from temporary distribution losses caused by the widespread disruptions of the cyberattacks. The attacks also disrupted production, leading to uncertainty in the company’s operations. Its year-to-date operating cash flow also declined significantly by 51% to $355 million.
The Clorox Company (NYSE:CLX) reached its all-time high in August 2020 when it was trading at around $237 apiece. Since then, the stock has declined by nearly 44%. Volume growth has been difficult to achieve for the company since COVID-19 led consumers to buy its products rapidly. The company’s 2024 outlook indicates that it is still grappling with demand challenges, as organic sales are expected to increase only modestly in FY24. The company has also lowered some aspects of its guidance, putting additional pressure on the stock. Management expects sales will hit the lower end of the revised estimate range from early February. In addition, earnings growth is projected to be slower than initially planned due to weak results in Q3.
Last month, Barclays highlighted in its investors’ note that companies that managed to raise prices faster than inflation are at a greater risk if the economy faces demand and persistent inflation pressures. The firm added The Clorox Company (NYSE:CLX) to that list. Analysts have maintained a consensus Hold rating on the stock, which makes CLX one of the worst dividend aristocrat stocks on our list. Bireme Capital also discussed The Clorox Company (NYSE:CLX)’s pricing strategy in its Q4 2023 investor letter.
“As we entered the second half of 2023, the valuation of many consumer staples companies perplexed us. The SPDR Consumer Staples ETF traded at a healthy 24x earnings despite low-single-digit projected earnings growth and a dramatic rise in interest rates. On top of the rich valuations, many of the underlying businesses face long-term headwinds and have been papering over volume declines with price increases. We shorted a few of these companies in Q3, including The Clorox Company (NYSE:CLX).
In fiscal 2023 (ended in June), Clorox sold 10% fewer products than the year before. However, they raised prices by 16%, allowing the firm to report 4% revenue growth despite the sharp volume declines. This is not a sustainable way to grow a business. Tobacco companies operate similarly and trade at below 10 times earnings. In contrast, Clorox traded at more than 30x earnings when we initiated our short position.”
At the end of March 2024, 38 hedge funds tracked by Insider Monkey reported having stakes in The Clorox Company (NYSE:CLX), down from 39 in the previous quarter. These stakes are valued at over $1.6 billion collectively. With over 2 million shares, Citadel Investment Group was the company’s leading stakeholder in Q1.
Overall CLX ranks 13th on our list of the worst dividend aristocrat stocks to buy. You can visit 20 Worst Dividend Aristocrat Stocks According to Analysts to see the other dividend aristocrat stocks that are on hedge funds’ radar. While we acknowledge the potential of CLX as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as CLX but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
