Clorox (CLX) has increased its dividend for nearly 40 straight years and owns some of the most well-known and recession-resistant consumer brands in the country. The company is a fraction of the size of P&G (PG) and has numerous growth opportunities to pursue over the coming years.
While the stock might not be a bargain today, it shares many characteristics with some of the holdings in our Top 20 Dividend Stocks portfolio.
business Overview
CLX started in 1913 with five people and one product in Clorox bleach. In fact, CLX remained a one-product company for its first 56 years. Today, the company has over 7,700 employees, sells its products in more than 100 countries, and boasts a brand portfolio spanning numerous product categories including home care, laundry, charcoal, food, water filtration, cat litter, and more. Some of the company's famous brands are Clorox, Pine-Sol, Glad, Kingsford, Hidden Valley, Brita, and Burt's Bees.
CLX generates about 32% of its sales from cleaning products, 32% from household products, and 17% from lifestyle products and derives 19% of its revenue from faster-growing international markets.
Business Analysis
As a consumer products company, CLX's primary competitive advantages are its strong portfolio of brands, shelf space with retailers, marketing expertise, and product innovation.
With the Clorox brand dating back more than 100 years, CLX has benefited from being one of the first brands in consumers' minds for most of its key product categories. When you walk down the aisle of your favorite retailer and see CLX's main household brands, you know they will deliver quality.
As a result, over 80% of CLX's sales are generated from brands with a number one or number two market share position. Overall, Clorox has 23% market share and is three times the size of its next largest branded competitor. The company focuses on attaining large market shares in mid-sized categories, which also helps it avoid going head-to-head as much with giants such as P&G.
The non-food consumer products space is very sticky and generally less subject to change. According to IRI Market Advantage, 85% of American household needs are consistently filled with the same 150 items, and 60-80% of new product launches fail.
In other words, CLX maintains a durable and sticky market position, and new entrants really struggle to win over consumers who are happy with incumbents' offerings.
To stay relevant, the company is constantly conducting consumer research to help it launch innovative products and sharpen its marketing campaigns. CLX spent $523 million on advertising (9.2% of sales) and invested $136 million on R&D (2.4% of sales) during its last fiscal year.
Smaller competitors and new entrants don't have the financial firepower to build up their brand recognition with consumers and retailers.
CLX's extensive distribution networks around the world are another major strength. CLX can expand the types of products under its brands or acquire new products and sell them throughout the world very efficiently. For example, the company launched the Burt's Bees Renewal face care line last fiscal year to enter the fast-growing $24 billion anti-aging face care category. Since consumers are already very familiar with the Burt's Bees brand, CLX can more easily grow its business in new areas.
