24/7 Wall St. Quick Read Clorox paid out 123% of free cash flow as dividends in fiscal 2024 before improving to 79% in fiscal 2025. Shareholder equity declined from $908M in fiscal 2020 to $321M in fiscal 2025. Management expects $100M in annual tariff headwinds but considers the impact manageable. A recent study identified one single habit that doubled Americans’ retirement savings and moved retirement from dream, to reality. Read more here. Clorox (NYSE:CLX) operates household brands includi ...

Core Viewpoint - Clorox's dividend yield appears attractive at just under 5%, but the stock has declined 37% over the past year, raising concerns about the sustainability of the dividend [1][9]. Dividend Metrics - The annual dividend is $4.92 per share, resulting in a dividend yield of 4.99% [2]. - Clorox has increased its dividend for over 13 consecutive years, with the most recent increase being 1.6% in April 2025 [2]. - The 5-year compound annual growth rate (CAGR) for dividends is 2.5% [2]. Cash Flow Analysis - In fiscal 2025, Clorox paid $602 million in dividends against a free cash flow of $761 million, resulting in a free cash flow payout ratio of 79% [3][4]. - The payout ratio was concerning in fiscal 2024, where dividends exceeded free cash flow at 123% [3][4]. - Operating cash flow has shown volatility, with figures swinging from $1.5 billion in fiscal 2020 to $695 million in fiscal 2024, then recovering to $981 million in fiscal 2025 [4]. Debt and Equity Position - Clorox has a total debt of $2.88 billion and cash reserves of $167 million, leading to a net debt of $2.71 billion [5]. - The net debt-to-EBITDA ratio is 2.4x, which is considered manageable for a consumer staples company [5]. - Shareholder equity has decreased significantly from $908 million in fiscal 2020 to $321 million in fiscal 2025, indicating a trend of paying out more in dividends and buybacks than the company has earned [6]. Management Outlook - CEO Linda Rendle acknowledged near-term challenges but highlighted operational strength, noting a tenth consecutive quarter of gross margin expansion [7]. - CFO Luc Bellet mentioned expected tariff headwinds of about $100 million annually but views this as manageable through sourcing changes and targeted pricing [7]. - Management expressed confidence in the balance sheet and cash flow, suggesting the dividend is secure, although dividend growth has slowed to 1.6% in 2025 compared to historical rates of 5% to 7% [8]. Dividend Safety Assessment - Clorox has a moderate risk rating for dividend safety, with a fiscal 2025 payout ratio of 79% deemed technically sustainable [9]. - However, the previous year's payout ratio of 123% and recent cash flow volatility raise concerns about the dividend's sustainability [9][10].

Group 1: Investment Opportunities in Packaged Goods - Investment in packaged goods stocks, such as Procter & Gamble and Kimberly-Clark, is suggested as they are seen as undervalued winners in the sector [1][2] - The packaged goods sector has faced challenges due to high inflation and low growth, but inflation may be nearing its peak, potentially reducing costs for consumer giants [2] - Kimberly-Clark's acquisition of Kenvue is noted, along with praise for its brands, while Procter & Gamble is recognized for its innovation and scale to lower product costs [3] Group 2: Broader Market Insights - Clorox is highlighted as a poor performer in the S&P 500, but its products, including Burt's Bees and Hidden Valley, are still favored [3] - General Mills is mentioned as a risky investment, particularly if there is speculation about a takeover, due to the impact of weight loss drugs on food stocks [3] - Beyond traditional packaged goods, opportunities in pharmaceuticals are emphasized, with Johnson & Johnson and Amgen identified as solid picks amid expected industry mergers [4]

Core Insights - The article discusses consumer stocks with high-yielding dividends and a history of payout increases, highlighting the balance between dividend yield and associated risks [1][2]. Group 1: Realty Income - Realty Income is known as the "monthly dividend company," owning over 15,600 single-tenant, net-leased properties, allowing it to avoid income tax on operational income by distributing over 90% of net income as dividends [3][4]. - The company has consistently increased its monthly dividend since 1994, currently offering an annual dividend of over $3.23 per share, translating to a cash return of over 5.3% [4][8]. - Realty Income faced challenges during the pandemic and rising interest rates, leading to a stock price discount of approximately 24% from its early 2020 high [5][6]. - With declining interest rates, Realty Income is positioned to reduce costs and expand, trading at about 15 times its funds from operations (FFO) income of $4.11 per share [7][8]. Group 2: Clorox - Clorox, known for its cleaning products, experienced a surge in demand during the pandemic but has since faced a decline in stock price, trading at about a 50% discount from its all-time high [9][11]. - The company has been impacted by a cyberattack in 2023, disrupting its supply chain and leading to product shortages [10][11]. - Despite these challenges, Clorox maintains a history of dividend increases, currently offering an annual payout of $4.96 per share, resulting in a dividend yield of over 4.1% [13][14]. - Clorox's price-to-earnings ratio is 18, below the S&P 500 average of 31, making it attractive for dividend investors seeking potential stock-price appreciation [13][14][15].