Clorox (NYSE:CLX) is far from a boring home cleaning company these days. In the second half of 2024, Clorox is up 21% – a hot run that’s even better than Nvidia during this period. Here’s why Clorox is impressing Wall Street and why the dividend stocks It might still be worth buying now.

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This drives sales growth and margin expansion

Clorox investors have had a roller coaster ride in recent years. As you can see in the chart, revenue and margins surged during the height of the COVID-19 pandemic. But then sales fell and operating margins fell into the single digits.

Clorox vastly overestimated consumer purchasing behavior. The company thought the trend in demand for hygiene and cleaning products would continue – but that is not the case – leaving Clorox in a situation of overcapacity. Expanding to meet growing demand can unlock growth. However, this strategy can also impose too many additional costs on the company, such as excessive promotional campaigns or high labor and distribution costs.

Clorox took more than two years to turn around, leading to an underperforming stock price. This prolonged slowdown is partly explained by a cyberattack in August 2023 which seriously disrupted Clorox’s activities. But as of last quarter, Clorox said it has fully restored its supply chain and the vast majority of market share lost to the cyberattack.

Clorox is arguably in much better shape today than before the pandemic. Sales are significantly higher and Clorox has returned its operating margins to the mid-teens. Referring to the chart above, you will notice that the Clorox stock price has returned to its pre-pandemic level. Clorox must now prove that it can continue its momentum and capitalize on its turnaround.

An aggressive but effective strategy

On October 30, Clorox reported strong results for the first quarter of its fiscal 2025 and updated several expectations for the full year. Clorox now expects organic sales growth of 3% to 5% and adjusted earnings per share of $6.65 to $6.90, a year-over-year increase of 8% to 12%.

Based on Clorox’s current stock price of $165 and the midpoint of guidance, Clorox would have a price-to-earnings ratio of approximately 24 if it achieves its full fiscal year 2025 results. isn’t exactly cheap, especially when you consider an adjusted figure based on expected earnings for the next nine months.

Clorox’s adjusted earnings include a “charge of $0.60 per share from long-term strategic investments in digital capabilities and productivity enhancements.” Factoring in these same expenses, selling and administrative expenses are expected to be approximately 15-16% of net sales. While Clorox’s long-term investments and promotions aren’t cheap, they appear to be working, given how quickly Clorox has been able to recover its margins since the cyberattack.

Clorox hasn’t been shy about spending money to make money by investing in its biggest brands. Since becoming CEO in September 2020, Linda Rendle has turned to bold ideas to capture market share and grow brands rather than remaining on the defensive. This strategy backfired, but it appears to be the right decision to take Clorox to the next level now that the business climate has normalized.

Support future dividend increases

The simplest reason to invest in Clorox for the long term is its exceptional portfolio of brands spanning multiple categories that can drive earnings and dividend growth.

Clorox operates in several end markets, including cleaning, professional products, bags, packaging, cat litter, grilling, food, water filtration and natural personal care. The company owns dozens of brands, but some notable brands, in addition to the flagship Clorox line, are Brita, Burt’s Bees, Glad, Hidden Valley, Kingsford, Pine-Sol and Scoop Away.

Clorox’s diversification mitigates cyclicality and allows the company to adapt to buyer behavior by catering to different end markets. Even when Clorox is struggling, it has managed to increase its dividend. In fact, Clorox has paid and increased its dividend for 40 consecutive years. And with a 3% yield, the stock offers investors a better passive income opportunity than the 2.6% yield they can get in low-cost consumer staples exchange-traded funds (ETFs). cost like Vanguard Consumer Staples ETF or the simple yield of 1.3% of Vanguard S&P 500 ETF.

Clorox is a passive income powerhouse

Clorox may not be a super cheap value stock based on short-term results, but long-term investors may still want to pick up shares based on how well they can leverage their portfolio over time. time. Clorox gives investors plenty of reasons to be excited, especially if it can continue to convert advertising and promotional investments into results.

Stocks could calm down given their sharp rise in a short period of time. But zoom out, and Clorox is a fairly valued high-yielding dividend stock that can continue to execute its strategy no matter what the economy does. Add it all up, and Clorox is a compelling and safe stock worth a closer look, especially for retirees or investors more focused on capital preservation than capital appreciation.

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Daniel Foelber has no position in any of the stocks mentioned. The Motley Fool has positions and recommends the Nvidia and Vanguard S&P 500 ETFs. The Motley Fool has a disclosure policy.

Clorox’s turnaround is almost complete. Here’s why the ultra-safe dividend stock is worth buying now. was originally published by The Motley Fool