Church & Dwight Co., Inc. (NYSE:CHD) and The Clorox Company (NYSE:CLX) look quite different when it comes to dividends. CHD offers a much lower yield, but its dividend is growing faster. Clorox gives investors far more income today, though the company has been much more conservative with recent increases.
Church & Dwight Co., Inc. (NYSE:CHD)
Church & Dwight pays $0.3075 per share each quarter and continues to maintain its long dividend track record. The company also has a portfolio of familiar brands, including Arm & Hammer and Trojan, which gives it a fairly stable business base.
Church & Dwight Co., Inc. (NYSE:CHD) raised its dividend by 4.2% earlier this year. The yield may be low, but investors focused on growing their income can look at that increase as a sign that the payout is still moving in the right direction. At $101.24 per share, as of the close of August 12, CHD’s annualized dividend of $1.23 gives the stock a yield of about 1.22%. That is not enough to make the stock a major income play today. What helps is the earnings outlook. Management expects organic sales to grow 3% to 4% and adjusted EPS to rise 5% to 8% for the full year. If the company hits those targets, it should have room to keep increasing the dividend.
That makes CHD more of a long-term dividend-growth investment. Investors are giving up income today in exchange for the potential to build a larger income stream as earnings and the dividend grow.
The Clorox Company (NYSE:CLX)
The Clorox Company (NYSE:CLX) is a different story. Investors get a much higher starting yield, and the board recently raised the quarterly dividend to $1.25 per share from $1.24. The increase also extended the company’s annual dividend growth streak to 49 consecutive years.
At $105.76 per share, Clorox’s $5.00 annualized dividend gives the stock a yield of about 4.73%. That is nearly four times CHD’s yield. For investors who want a meaningful income stream from their portfolio, the difference is substantial.
The trade-off is the pace of dividend growth. Clorox’s latest increase was only 0.8%, well below CHD’s 4.2% raise. That smaller increase suggests management is being careful with the payout while the company works through margin issues, efficiency efforts, and pressure on consumer spending.
The nearly 5% yield is a clear advantage for investors who want income now. The question is what happens after that. If dividend increases stay small, the income stream will grow more slowly over time.
Valuation and Strategic Allocation
The choice between the two is fairly simple. The Clorox Company (NYSE:CLX) puts more income on the table today, while Church & Dwight Co., Inc. (NYSE:CHD) offers better potential for dividend growth. Clorox clearly wins on current yield. Its 4.73% yield is much higher, and the 49-year dividend growth record gives investors some added confidence in the payout.
Church & Dwight has the edge on dividend growth. Its 4.2% increase, combined with expected mid-single-digit earnings growth, gives it a better setup for raising the payout in the years ahead. The better choice comes down to what an investor needs from the portfolio. Clorox is the more obvious choice for someone who wants a sizable income stream right away. CHD is more suited to investors who can accept a lower yield today and wait for the dividend to grow over time.
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Disclosure: None. This article is originally published at Insider Monkey.
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