Clorox (CLX 1.08%) is one dividend-paying company that thrived at the pandemic onset as folks urgently looked for disinfectant products. The rest of Clorox's product portfolio also performed well as most of them are used at home, and people have been spending a lot more time there.
In the beginning of Clorox's fiscal year 2022, sales are decreasing slightly as the fear of contracting COVID-19 diminishes. Let's look deeper at Clorox and determine if it's a dividend stock worth buying in 2022.
Clorox has been thriving since the pandemic onset as people are more interested in disinfecting surfaces. Image source: Getty Images.
Clorox is not shy about raising dividends
While sales surged for Clorox at the pandemic onset, that was not expected to sustain long-term. Indeed, Clorox is targeting sales growth in the range of 3% to 5% over several years. And looking back over the last decade, Clorox increased sales at a compound annual rate of 3.4%.
The revenue growth in the last decade was enough to grow earnings per share at 3.3%. Note that dividends are paid out of profits, so earnings growth is vital. Otherwise, a company must dip into savings or borrow money to pay dividends -- an unsustainable path.
Clorox has rewarded dividend investors with solid increases over the years. Between 2005 and 2021, Clorox has raised its annual dividends per share from $1.12 to $4.54. A patient dividend investor who held their stock starting 2005 would now be getting more than four times the dividend payment they began with.
As of this writing, Clorox boasts a healthy 2.6% dividend yield. Clorox management can choose how much of its earnings it pays in dividends. As it stands, Clorox is paying 62.6% of earnings in dividends; the rest it is keeping to reinvest in the company.
Given that Clorox is growing earnings per share and is maintaining a sustainable dividend payout ratio, there is room for the company to keep raising dividends over time. Today's investors in Clorox can reasonably expect a much larger dividend payment 10 years from now.
Is Clorox a dividend stock to buy right now?
Clorox is trading at a price-to-free-cash-flow ratio of 36.2 and a price-to-earnings ratio of 51.6; both are near the highest the company has sold for in the last decade. Enthusiasm for the stock gained momentum amid surging sales since the pandemic onset. That has boosted the share price to elevated levels.
Clorox is a great company with a long history of outperforming its peers. Measuring total shareholder return, which includes dividends and stock price gains, Clorox has topped its peer group in the last one-, five-, 10-, and 20-year periods.
Still, the stock is on the expensive side right now. Earnings can face further pressure from rising costs due to supply chain shortages worldwide. Therefore, dividend investors would be prudent to wait for a pullback in the share price before buying Clorox stock in 2022.
