Clorox’s 5% Yield Looks Solid but One Metric Deserves Attention

Core Viewpoint - Clorox's stock has declined 37% over the past year, raising concerns about the sustainability of its attractive dividend yield of 4.99% [2] Financial Metrics - Clorox pays an annual dividend of $4.92 per share, with a dividend yield of 4.99% and has increased dividends for over 13 consecutive years, with a recent increase of 1.6% in April 2025 [2] - The company reported free cash flow of $761 million in fiscal 2025, an improvement from $483 million in fiscal 2024, while dividends paid remained stable at $602 million [4] - The free cash flow payout ratio improved from 123% in fiscal 2024 to 79% in fiscal 2025, indicating a more manageable dividend payout [3][4] Cash Flow and Debt Analysis - Operating cash flow has been volatile, decreasing from $1.5 billion in fiscal 2020 to $695 million in fiscal 2024, then recovering to $981 million in fiscal 2025 [4] - Clorox has total debt of $2.88 billion against $167 million in cash, resulting in net debt of $2.71 billion, with a net debt-to-EBITDA ratio of 2.4x, which is considered manageable for a consumer staples company [5][6] Shareholder Equity and Management Outlook - Shareholder equity has declined significantly from $908 million in fiscal 2020 to $321 million in fiscal 2025, reflecting a history of paying out more in dividends and buybacks than the company earned [6][7] - Management acknowledges near-term challenges but remains confident in operational strength, citing a 10th consecutive quarter of gross margin expansion and plans to manage expected annual tariff headwinds of $100 million through sourcing changes and targeted pricing [8]