The Clorox Company (NYSE:CLX) is included among the Best High Yield Stocks to Buy in October. Clorox’s (CLX) Dividend Appeal: A Defensive Play for October Capture Strategies The Clorox Company (NYSE:CLX) is a consumer products company that is best known for its bathroom and kitchen staples — household cleaners, disinfecting wipes, and bleach — alongside trash bags, grilling supplies, cat litter, and even condiments. The company derives approximately 80% of its sales from brands that hold the first or sec ...

Core Viewpoint - Clorox, a consumer staples company, is currently undervalued with shares down 22% year-to-date and 47% from all-time highs, presenting a potential investment opportunity in a market dominated by high-beta stocks [3][10]. Group 1: Company Performance and Challenges - Clorox has faced significant challenges, including a cyberattack in 2023 and the ongoing replacement of its enterprise resource planning (ERP) system, which has led to sales and inventory fluctuations [5][6]. - Despite these challenges, Clorox's brands remain strong, with the company maintaining a healthy consumer value metric and growing household penetration in fiscal year '25 [6][7]. Group 2: Financial Metrics and Valuation - Clorox is expected to generate approximately $6.10 in adjusted earnings per share (EPS) in 2026, trading at a reasonable 20 times forward earnings, which is below the S&P 500 average of around 30 [10]. - The company boasts a return on invested capital (ROIC) of 25%, indicating strong profitability and the potential for market-beating returns over the long term [11]. - Clorox has returned its free cash flow (FCF) margin to 11%, with expectations to reach 13% after ERP system changes and divesting from lower-margin businesses [12]. Group 3: Dividend and Share Buybacks - Clorox offers a dividend yield of 3.9%, near a decade-long high, and has sufficient FCF to cover these payments despite recent challenges [12][14]. - The company has reduced its shares outstanding by 0.6% annually over the last decade, with a more significant reduction of 1.3% in the past year, enhancing per-share metrics [17]. Group 4: Investment Outlook - While Clorox may not provide multibagger returns in the near term, its strong brand moat, attractive dividend yield, and potential for margin improvement suggest it could deliver market-matching returns and consistent passive income with lower risk [18].

Core Insights - The stock market in 2025 has experienced significant volatility, with major indexes facing steep sell-offs followed by rapid recoveries [1] Group 1: Dividend Stocks Overview - Investors are increasingly seeking dividend stocks as a means to generate passive income, especially in a volatile market [2] - Dividend stocks are particularly appealing to risk-averse investors and those looking to balance their portfolios [2] Group 2: Devon Energy - Devon Energy is highlighted as a reliable dividend stock, with a current dividend of $0.96 per share, yielding over 3% [6] - The company's breakeven funding level is $45 per barrel of oil, indicating the minimum price needed to sustain operations and dividends [6] - With oil priced at $63 per barrel, Devon could potentially increase dividends or buy back shares, projecting $2.6 billion in free cash flow at $60 per barrel, equating to 12.9% of its market capitalization [7] Group 3: Brookfield Infrastructure - Brookfield Infrastructure offers a forward dividend yield of 5.2% and is currently trading at a discount to its historical valuation, making it an attractive option for income-focused investors [8][13] - The company has demonstrated a 14% compound annual growth rate in funds from operations over the past 15 years, indicating strong operational performance [12] - Brookfield Infrastructure generates sufficient funds from operations to cover its dividend payments, reinforcing its appeal for passive income [10] Group 4: Clorox - Clorox has faced challenges but is positioned as a high-yield dividend stock with a yield of 3.8% and a history of 48 consecutive years of dividend increases [17] - The company is expected to see cost benefits from its enterprise resource planning system starting in 2026, which may improve its financial performance [15] - Clorox has achieved 10 consecutive quarters of gross margin expansion, indicating improved cost management despite sales challenges [16]

Financial Data and Key Metrics Changes - The company reported a tenth consecutive quarter of gross margin expansion, indicating strong fundamentals despite a challenging consumer environment [7][8] - The updated outlook reflects anticipated pressure on consumers and retailers, impacting sales growth expectations [7][8] Business Line Data and Key Metrics Changes - The household products category experienced a low single-digit decline, attributed to changing consumer spending behaviors and macroeconomic uncertainties [12][19] - The company maintained overall market shares across its portfolio, with specific categories showing resilience despite competitive pressures [7][12] Market Data and Key Metrics Changes - U.S. consumer sentiment weakened significantly in the latter half of the third quarter, leading to changes in shopping behaviors and impacting sales [7][19] - Retailers engaged in inventory destocking, particularly in the household segment, which affected sales figures [36][39] Company Strategy and Development Direction - The company remains focused on its long-term strategy, emphasizing organic sales growth and strong earnings growth despite current market challenges [8][18] - The management is actively working on mitigating tariff impacts through strategic pricing and supply chain adjustments [28][29] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the resilience of its essential product categories, despite current consumer spending pressures [7][21] - The company anticipates continued challenges in the consumer environment but remains committed to navigating these uncertainties effectively [8][21] Other Important Information - The company is preparing for an ERP transition, which is expected to enhance operational efficiency and support future growth [55][59] - The management highlighted the importance of maintaining a strong balance sheet and cash flow to capitalize on potential M&A opportunities in the future [118][119] Q&A Session Summary Question: What is driving the category weakness? - Management noted that while categories typically show resilience, recent macroeconomic factors have led to a low single-digit decline in household essentials [12][19] Question: How should we think about organic sales growth given current conditions? - Management indicated that organic sales growth expectations are muted due to ongoing category softness and retailer inventory adjustments [24][88] Question: What is the expected impact of tariffs on gross margins? - The anticipated gross impact from tariffs is around $100 million annually, with efforts underway to mitigate this through various strategies [27][28] Question: Can you provide insights on promotional activity by category? - Management confirmed that promotional activity has normalized but varies by category, with some experiencing higher promotional pressures [44][46] Question: How is the ERP transition expected to impact organic sales? - The ERP transition is expected to provide a lift in organic sales, with retailers building inventory ahead of the transition to mitigate out-of-stock risks [55][59] Question: What is the company's approach to M&A in the current environment? - The company remains open to M&A opportunities but prioritizes maintaining a healthy core business and strong financial performance [118][119]

Financial Data and Key Metrics Changes - The company experienced a decline in overall market categories, with average declines in the low single digits during the third quarter [14][22] - Despite the challenges, the company maintained market shares and achieved its tenth consecutive quarter of gross margin expansion [9][10] - The gross margin for the fourth quarter is expected to be around 44%, consistent with the annual average of approximately 44.5% [40] Business Line Data and Key Metrics Changes - The household products segment faced significant competitive pressure, leading to a decline in sales, particularly in the Glad brand due to increased promotional activity [96][100] - The cleaning category showed resilience, with the company growing market share despite overall category declines [86][111] - The cat litter segment is competitive, but the company has introduced innovations that are performing well in the market [100][101] Market Data and Key Metrics Changes - Consumer sentiment weakened significantly in the second half of the third quarter, impacting shopping behaviors and leading to lower-than-expected sales [8][9] - Retailers are adjusting their inventory levels, which has resulted in some destocking, particularly in the household segment [41][44] - The company noted a shift in consumer spending towards essentials and larger purchases, impacting discretionary categories [17][78] Company Strategy and Development Direction - The company aims to continue delivering organic sales growth and strong earnings growth while navigating a challenging consumer environment [10][120] - There is a focus on innovation and maintaining a balanced portfolio that caters to both premium and value-seeking consumers [55][111] - The company is actively managing its supply chain and pricing strategies to mitigate the impact of tariffs and maintain margins [32][70] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the resilience of their essential product categories despite current economic uncertainties [9][23] - The outlook for fiscal year 2025 anticipates continued challenges, with organic sales growth expected to be muted [27][92] - The company is closely monitoring consumer behavior and market dynamics to adapt its strategies accordingly [23][120] Other Important Information - The company is preparing for an ERP transition, which is expected to enhance operational efficiency and inventory management [61][65] - There is a wide range in the sales outlook due to the volatility in consumer demand and retailer inventory adjustments [62][66] Q&A Session Summary Question: What is driving the category weakness? - Management noted that while categories are traditionally resilient, recent macroeconomic uncertainties have led to a low single-digit decline in sales [14][22] Question: How should we think about organic sales growth in the long term? - The company expects organic sales growth to be suppressed in the near term but anticipates a return to normal category growth over time [27][28] Question: What is the expected impact of tariffs on gross margin? - The anticipated gross impact from tariffs is around $100 million annually, with efforts underway to mitigate this through various strategies [31][32] Question: Can you provide insights on promotional activity by category? - Promotional activity has normalized overall, but some categories, like Glad, are experiencing higher promotional pressures due to competitive actions [50][51] Question: How is the ERP transition expected to impact sales? - The ERP transition is expected to lead to a build-up of inventory, which could translate into growth in the following quarters [65][66] Question: What is the company's approach to M&A in the current environment? - The company remains focused on strengthening its core business while exploring opportunities for portfolio improvement through M&A [120]