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Clorox Hiked Dividends on Lower Taxes

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Clorox Hiked Dividends on Lower Taxes PART 1 OF 2

Clorox Hiked Dividends on Lower Taxes

Clorox increases quarterly dividend by 14%

The Clorox Company (CLX) recently hiked its quarterly dividend by 14% to $0.96 per share from $0.84. Clorox has a strong history of rewarding shareholders with increased dividends and share repurchases. In fact, Clorox is a dividend aristocrat, a term used for companies that have consistently increased their dividends for more than 25 years.

Clorox Hiked Dividends on Lower Taxes

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The move reflects the benefits stemming from the recently enacted Tax Cuts and Jobs Act, which is expected to boost the company’s cash flow generation capabilities significantly. Clorox now expects its free cash flow as a percentage of sales to be 11% to 13%, up from its earlier guidance of 10% to 12%.

The financials of household and personal care product makers in the US are taking a hit from weak volumes and lower pricing amid increased competition. Moreover, the reinvestment needed to support innovation and spur demand further remains a drag.

However, with lower corporate tax rates, these companies are expected to generate increased free cash flows, which could enable them to boost shareholder return through share buybacks and dividend hikes. Besides, it will also allow these companies to support their growth initiatives without affecting profitability.

Recently, Kimberly-Clark (KMB), another major consumer product maker, raised its quarterly dividend by 3.1%, anticipating benefits from the tax reform bill.

Clorox’s dividend yield compared to peers

Clorox’s dividend yield of 2.6% based on its closing price of $128.53 as of February 13, 2018, remains lower than that of Kimberly-Clark and Procter & Gamble’s (PG) dividend yield of 3.5% and 3.4%, respectively. Meanwhile, Colgate-Palmolive (CL) and Church & Dwight (CHD) have current dividend yields of 2.3% and 1.8%, respectively.

Clorox stock is part of the SPDR S&P Dividend ETF (SDY) for being a dividend aristocrat, which invests in companies that have increased their dividends for at least 20 years consistently. The SPDR S&P Dividend ETF has about 0.9% of its holdings in Clorox.

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