Consumer staples behemoth Clorox (CLX 0.58%) has faced no shortage of issues over the last few years. With ballooning inflation and a cyberattack hampering Clorox's operations (among many other companies), the company's stock still languishes 33% below its all-time highs from 2020.
However, despite facing these challenges, Clorox still grew sales by 17% over the past five years. This growth highlights the nondiscretionary nature of its products -- they will be purchased regardless of the challenging macroeconomic environment.
This sales stability, paired with Clorox's ongoing turnaround yet depressed share price, makes it a steady-Eddie stock worth a long look today. With the company (and its 3% dividend yield) well on its way to becoming a Dividend King, I believe this magnificent stock offers the potential for a lifetime of passive income.
Clorox's array of niche-leading brands
The central investment thesis for owning Clorox stock is that it is home to over a dozen market-leading brands. In fact, roughly 80% of its sales come from brands that hold a No. 1 or No. 2 market share in their product category. Here is a look at the company's most prominent brands in each of its business segments:
- Health and wellness: Clorox, Pine-Sol, Scentiva, Formula 409, and Liquid-Plumr.
- Household: Glad, Kingsford, Fresh Step, and Scoop Away.
- Lifestyle: Burt's Bees, Brita, and Hidden Valley.
This dominant positioning across several consumer staples categories has helped Clorox roughly match the S&P 500's total returns since the turn of the century. These returns come in spite of a cyberattack in 2023 that caused the company to halt production at many of its manufacturing facilities and sent its stock down over 30%.
While this attack disrupted Clorox's product distribution and interrupted its five-year, $500 million enterprise resource platform changeover and transition to the cloud, the company is almost back to "normal" one year later. CEO Linda Rendle spoke to this point at the company's last earnings call, explaining:
We entered fiscal 2025 in a position of operational strength, having fully restored supply, distribution, and the vast majority of market share from the August 2023 cyberattack. This quarter, we drove further progress as we fully restored overall market share, grew share in most of our categories, and delivered results above our expectations, while continuing to make progress against our strategy for long-term value creation.
Best yet for investors, the company's gross profit margin improved for the eighth straight quarter, highlighting its operational turnaround seen following the cyberattack and inflation that beset the business.
CLX Gross Profit and Free Cash Flow Margin data by YCharts
While its 9% free cash flow (FCF) margins have yet to recover to their historical norm, Clorox's cash return on invested capital (ROIC) remains high at 23%. This lofty ROIC means that the company does an outstanding job of generating outsized cash flows from its debt and equity -- a trait that has proven to offer investors market-beating potential.
47 years of dividend payment increases and a reasonable valuation
Powered by this steady cash generation -- even amid one of the most trying times in Clorox's history -- the company can easily fund its 3% dividend yield, with room for future payment increases. Currently, Clorox's dividend payments only use 89% of its FCF despite the fact these cash flows are yet to return to pre-pandemic levels.
After increasing its dividend payments annually for 47 straight years, Clorox is only three years away from becoming a Dividend King. Dividend Kings are a who's who of the most successful dividend growth stocks of all time and popular among investors looking for reliable passive income growth. Despite being set to join this elite company, Clorox stock only trades at 2.7 times sales today.
CLX PS Ratio data by YCharts
If it can return to its 13% FCF margins of yesteryear, the stock would be available at a reasonable 20 times FCF. This valuation compares favorably to the S&P 500's average mark of around 30.
With management guiding for long-term sales growth of 4% annually and slightly higher bottom-line growth as its operations normalize, Clorox's discounted valuation and high-yield dividend look like a safe haven in an otherwise expensive market.
