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Dividend Aristocrats Part 14 of 52: Clorox Co (CLX)

Clorox Co (NYSE:CLX) was founded in Oakland California in 1913.  The company is still headquartered in Oakland, and currently employs around 7,700 people.

Since 1913, Clorox has grown significantly.  The company now has a market cap of $15.8 billion.  The company is remarkably consistent.  Clorox has increased its dividend payments for 38 consecutive years and has a history of rewarding shareholders with share repurchases as well.

Hedge funds tracked by Insider Monkey were somewhat on the fence concerning Clorox as of June 30. 27 of the more than 730 funds we track were long Clorox, holding stewardship over 5.30% of its shares, which were worth just under $724 million on June 30. Ownership was up by one during the second quarter, though the value of the funds’ collective holdings fell by about 10% (the stock’s dip accounted for half of that, as it slid by 5% during the period). Andy Brown‘s Cedar Rock Capital was one of the bullish hedge funds long Clorox, owning 3.16 million shares and with 8.7% of its public equity portfolio invested in the stock.

Clorox sells branded consumer products.  Several of the company’s most well-known brands are listed below:

  • Pine-Sol
  • Clorox Bleach
  • Glad trash bags
  • Brita water filters
  • Kingsford charcoal
  • Fresh Step cat litter
  • Burt’s Bees natural products
  • Hidden Valley Ranch Dressing

The image below gives a concise breakdown of Clorox’ brands, including a revenue breakdown.  Note that 80% of the company’s brands are either #1 or #2 in their respective categories:

Clorox Brand Breakdown
Source:  Clorox 2020 Vision Presentation

Competitive Advantage

Clorox’ competitive advantage is derived from its strong brands.  The company has a long history of building, strengthening, and acquiring consumer branded products.

The company has dominant market share in the United States over several product categories, including:

  • ~60% market share in bleach (Clorox brand)
  • ~75% market share in charcoal (Kingsford brand)
  • ~60% market share in water filtration (Brita brand)

The company supports its brands by investing heavily in advertising.  Clorox’ advertising budget over the company’s last 3 full fiscal years is shown below:

  • 2015 advertising spend of $523 million
  • 2014 advertising spend of $503 million
  • 2013 advertising spend of $498 million

Clorox Co (NYSE:CLX) spends around 9% of its total sales a year directly on advertising.  The company’s large advertising budget helps it to sell its products for premium prices by highlighting the specific benefits of its products.

In addition to build up brand equity through advertising spending, Clorox also spends significantly on research and development.  The company is constantly attempting to improve its products to better serve its customers.  Clorox has spent about $130 million a year on research and development over the last 3 years.

Clorox’ full competitive advantage is a combination of its well-known brands, economies of scale and efficient supply chain, and its focus on product improvement through research and development.

Clorox’ competitive advantage gives it excellent margins relative to competitors.  The image below shows Clorox’ return on invested capital (abbreviated as ROIC) relative to its peers:

Source:  Clorox 2020 Vision Presentation

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