Avoid CLX long-term; lack of growth and unsustainable payout ratios (149% TTM FCF) make it a poor holding despite high yield.

Stock number four I'm going to talk today is the Clorox Company, ticker symbol CLX, and this stock has done terrible over the past 5 years. 49% it's down. It's down another 32% over the past year.

That's 52-week low, and this is another long-term dividend stock that's been raising their dividend payment every single year. It's a consumer giant. They have a lot of consumer brands.

You'll see them throughout the grocery store. A lot of these consumer staples are dividend aristocrats and dividend kings. This is one of them.

Now, red flags. Slowing dividend growth. Past 10 years it's up 56% or 4.56% CAGR. Over the past 3 years though, the dividend's only up 4% from 1.37% CAGR.

Flip side of that is it's trading at a historically high dividend yield, 5.97% just under 6% highest over the past 10 years, highest all-time since 2007. The median dividend yield over the past 5 years is 3.33%. So, we're well above that.

Now, the red flags. Free cash flow payout ratio has had many years recently where it looked unsustainable. That's why the dividend growth isn't there. They're not having growth in their cash flow.

They can't grow the dividend. It was 106% 2022, 123% 2024, 148% 2026. And over the trailing 12 months it's 149%.

If you look at it based on earnings payout ratio, so GAAP earnings per share, same story kind of where it was bad years. 123% 2022, 391 2023, 2024 212, 2026 102.

So, I'm not sure you're going to get a dividend cut because of its a history of payments. Management is going to want to hold on to this as long as they can, but this business is not growing.

You can just see free cash flow. It's lower than it was in 2002, and that's why I don't want to be in these kinds of stocks long-term. If you're trying to beat the S&P 500, you have to be growing. You have to have growth on your side.

And sometimes value and dividend investors, they forget about that part of investing. Now, yes, if you buy a stock cheap as hell, you can get good returns on it, especially if you buy it with a high margin of safety.

But even then, that doesn't mean you can hold it for 20 years after that.

And if we go back to 2000, even with dividends reinvested, the compound annual growth rate is 6.78%. Now, it's much better going back to the '80s, but this is a different company in the 1980s than it was at a different valuation back then.

So, you can see in the fair value graph for Clorox, if we have free cash flow selected, despite the stock doing terribly, the intrinsic value is declining. So, it actually doesn't look that cheap.

It looks a little better based on earnings per share. And on dividend cuz the dividend hasn't declined yet. But for Clorox to do well, you need earnings per share growth.