Here are three things we never expected to see in the same sentence: Carl Icahn, Clorox (CLX) stock and … Phil Mickelson?
The first two items make sense. Back in 2011, billionaire gnat Carl Icahn bought a chunk of Clorox stock as a prelude to making a hostile bid for the maker of bleach and Glad trash bags. As an activist investor and professional annoyance, Carl Icon has targeted plenty of other companies for a shake up (or shake down) over the years.
Now, reports have it that golfing great Phil Mickelson and others collectively made millions of dollars by buying options on Clorox stock ahead of the Icahn news. Heavy options activity in any stock ahead of takeover news always gets the attention of regulators, which is why the FBI and the Securities and Exchange Commission are looking into whether Mickelson was somehow privy to inside information.
Lost in the details of this highly unexpected story is this: CLX actually looks like a decent stock as long as you’re willing to hold it for decades.
No, CLX is not something you are going to trade. A sleepy, low-volatility security like Clorox stock is unlikely to net a quick payday — that is, absent a Carl Icahn bellyflopping into the market for CLX.
Additionally, CLX has been racking up disappointing returns for a while now. (That’s how it came into Carl Icahn’s crosshairs.) But if you’re looking for defensive names to hold “forever,” Clorox stock is a credible candidate.
Clorox Stock: Short-Term Loser, Long-Term Champ
On a total return basis (price plus dividends), Clorox stock lags the S&P 500′s total return for the year-to-date, as well as over one-, three- and five-year time frames. Indeed, since Carl Icahn dropped his bid for CLX a little less than three years ago, Clorox stock generated a total return of 41%. The broader market is up 80% on a total return basis over the same span.
There’s no way to sugarcoat it. CLX has been a dog in the post-recession period. (Which helps make the case for insider trading. Why else would anyone want options in it?)
However, as we said, Clorox stock isn’t really something you dip in and out of. You set it and forget it.
For one thing, CLX makes the InvestorPlace list of dependable dividend stocks. Clorox stock has paid a dividend every year since 1986, and — even more critically — it has hiked its dividend every year since 2000.
A relentless and rising dividend is one key to outperformance over the long haul and helps explain why CLX has so handily beaten the S&P 500 over the past decade. The 10-year chart shows that Clorox stock has a total return of 126%. The broader market is up just 111% over the same span.
The performance of Clorox stock in the last market crash is also instructive. Sure, CLX has been lagging the market, but then it also offers superior defense.
From pre-crash peak to trough in March 2009, Clorox stock fell about 25%. That hurts, no doubt, but any investor would take that over the S&P 500′s peak-to-trough loss of 50%.
It’s pretty much impossible to find a stock that outperforms on the way up and on the way down over shorter periods, to say nothing of long time frames. With a 3.3% yield on its dependable dividend, low volatility and long-term outperformance, CLX is a classic defensive dividend stock.
Clorox stock has been dead weight lately, but the next time the market sinks, it could be a lifesaver.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.