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Elevator Pitch
Procter & Gamble (NYSE:PG) is a better dividend stock and a superior buy as compared to The Clorox Company (CLX). PG’s dividend growth prospects are more attractive than that of CLX, and the former competes in product segments with relatively more benign private label competition.
Are Procter & Gamble And Clorox Direct Competitors?
Procter & Gamble and Clorox are direct competitors in certain segments of the overall home care market, but the extent of direct competition isn’t very significant.
Bob McDonald, the former CEO of PG, previously noted that “Clorox competes with us (Procter & Gamble) in some of our household care products” as part of PWC’s 14th Annual Global CEO Survey in 2011. Separately, a spokesman from Clorox was quoted as saying that “only a 10th” of CLX’s products “competes with Procter & Gamble” in a February 23, 2005 news article published in The Baltimore Sun.
Recent market data sourced from Euromonitor also suggests that while PG and CLX do compete with each other in some product categories, they aren’t competing directly in most areas of the home care market.
According to Euromonitor’s April 2022 research report (paid and not publicly available), Proctor & Gamble is the largest player in the overall US home care market boasting a 37.4% market share. Reckitt Benckiser Group plc (OTCPK:RBGPF) (OTCPK:RBGLY) and Clorox are the second and third largest companies with market shares of 8.2% and 6.9%, respectively.
PG and CLX compete most directly in the surface care segment of the domestic home care market. Clorox’s and Procter & Gamble’s products accounted for 20.5% and 14.9% of the US surface care market, respectively last year as per Euromonitor data, and home care wipes is an area where both companies are in competition with each other.
In contrast, there are certain segments of the home care market in the US, which Procter & Gamble and Clorox are the outright market leaders, and they don’t compete. According to Euromonitor, PG has a 58.1% share of the domestic dishwashing market based on 2021 sales data, and CLX is dominant in the US bleach market with a 65.3% market share in terms of product sales for the prior year.
In the subsequent section, I review some key metrics to determine which of the two companies has been performing better in recent times.
PG And CLX Stock Key Metrics
The key metrics for PG and CLX are the companies’ recent sales data as tracked by market research firms, as such data provides an indication of how both corporates are doing prior to the next quarterly earnings announcements.
Based on a recent June 28, 2022 Goldman Sachs (GS) report (not publicly available) titled “American Consumer Staples: Nielsen First Take” which cited data from Nielsen, Procter & Gamble grew much faster than Clorox in terms of household and personal care product sales tracked by the market research firm. For the four weeks ended June 18, 2022 PG’s sales rose by +7.8% YoY which was driven by a +3.4% expansion in volume and a +4.3% increase in price. Over the same period, sales for Clorox grew slightly by +1.5% YoY, as a +5.6% price increase was partially offset by a -3.9% decline in volume.
In the GS report, PG’s excellent sales growth was attributed to “share gains” in product segments like “shampoo, dish detergent, deodorant”, while the increase in market share for “private label” was mentioned as the reason for CLX’s volume decline.
At the dbAccess Global Consumer Conference on June 16, 2022, Procter & Gamble disclosed that “9 of 10 product categories grew or held (market) share over the past 3, 6 and 12 months” on a worldwide basis, and this supports the case of market share gains driving PG’s recent strong sales growth. Separately, it is no surprise that Clorox has been losing ground to private labels in recent times. In CLX’s key product segment, bleach, the company is mainly competing with private labels such as Walmart’s (WMT) Great Value brand which has a 13.1% market share (source: Euromonitor), and price-conscious consumers might be switching to private labels in the current weak economic environment.
I do a comparison of the two companies’ dividends in the next section.
How Do PG And CLX Dividends Compare?
In my view, PG is a better dividend play than CLX. Although Procter & Gamble’s dividend yield is inferior to that of Clorox, PG stands out for its historical dividend growth track record and its future dividend growth prospects.
According to data obtained from S&P Capital IQ, Procter & Gamble’s and Clorox’s consensus forward next twelve months’ dividend yields are 2.5% and 3.2%, respectively.
On the other hand, PG has increased its dividends in every single year for the past 65 years, while CLX’s track record of consecutive yearly dividend growth is relatively shorter at 20 years.
More importantly, Procter & Gamble’s sell-side consensus FY 2022-2026 dividend per share CAGR is +6.9%, while the Wall Street analysts expect Clorox to deliver a lower dividend per share CAGR of +5.3% over the same period as per S&P Capital IQ data. The faster-expected growth for PG’s future dividends is aligned with the company’s stronger sales growth in recent times as highlighted in the preceding section.
In conclusion, while PG’s dividend yield is lower as compared to CLX, Procter & Gamble is the superior dividend stock considering both its historical and future growth.
What Is The Future Outlook For Procter & Gamble And Clorox Stock?
Of the two companies, PG has the more appealing near-term outlook. Based on S&P Capital IQ data, sell-side analysts forecast that Procter & Gamble will deliver a positive +5.2% revenue growth for fiscal 2022, but they estimate that Clorox’s top line will contract by -2.3% in FY 2022.
The difference in private label penetration for the two companies’ key products explains why PG should outperform CLX in the short term. Referring to Euromonitor’s report on the US home care market cited earlier in my article, Walmart’s private label brands only account for 2.3% and 0.5% of the sales of dishwashing and laundry care products in the US, respectively, and these are the key product segments for Procter & Gamble. In comparison, WMT’s private label bleach brand boasts a 13.1% share of the domestic bleach products market.
As consumers tighten their purse strings in a challenging economic environment, private label brands should gain share at the expense of national brands, and this means PG is better positioned than CLX to at least maintain market share for the foreseeable future.
Is PG Or CLX Stock A Better Buy?
PG is a better Buy than CLX. Procter & Gamble is the more attractive dividend pick based on its track record and future growth prospects, and the company is less susceptible to competitive threats from private labels, unlike Clorox.
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