Clorox's Turnaround Is Almost Complete. Here's Why the Ultra-Safe Dividend Stock Is Worth Buying Now.

Clorox (NYSE: CLX) has been far from a boring household cleaning company as of late. In the second half of 2024, Clorox is up 21% -- a red-hot run that is even better than Nvidia during that period. Here's why Clorox is impressing Wall Street and why the dividend stock could still be worth buying now.

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It's generating sales growth and margin expansion

Clorox investors have been on a roller-coaster ride in recent years. As you can see in the chart, revenue and margins surged during the peak of the COVID-19 pandemic. But then, sales dipped, and operating margins plummeted to the single digits.

CLX data by YCharts. TTM = trailing 12 months.

Clorox badly overestimated consumer buyer behavior. It thought demand trends toward hygiene and cleaning products would last -- but they didn't -- leaving Clorox overextended. Scaling up to meet rising demand can unlock growth. However, the strategy can also leave a company with too many added costs, such as excessive promotional campaigns or expensive labor and distribution costs.

Clorox took over two years to recover, resulting in an underperforming stock price. Part of the reason for the prolonged slowdown was a cyberattack in August 2023 that badly disrupted Clorox's business. But as of the recent quarter, Clorox said it has now fully restored its supply chain and the vast majority of market share it lost due to the cyberattack.

Clorox is in arguably much better shape today than it was pre-pandemic. Sales are significantly higher, and Clorox has recovered its operating margins to mid-teens. Referring to the chart above, you'll notice that Clorox's stock price has recovered to right around its pre-pandemic level. Now, Clorox must prove it can continue its momentum and build upon its turnaround.

An aggressive but effective strategy

On Oct. 30, Clorox reported solid results for its fiscal 2025's first quarter and updated several full-year expectations. Clorox now expects organic sales growth of 3% to 5% and adjusted earnings per share of $6.65 to $6.90, a year-over-year increase of 8% to 12%.

Based on Clorox's current share price of $165 and the midpoint of guidance, Clorox would have a price-to-earnings ratio of about 24 if it achieves its full-year fiscal 2025 results. That's not exactly cheap, especially for an adjusted figure based on the next nine months of forecasted earnings.

Clorox's adjusted earnings include a $0.60 per share "expense from long-term strategic investments in digital capabilities and productivity enhancements." Factoring in that same expense, selling and administrative costs are expected to be about 15% to 16% of net sales. Although Clorox's long-term investments and promotions aren't cheap, they do seem to be working, given how quickly Clorox has been able to recover margins since the cyberattack.

Clorox has not been shy about its willingness to spend money to make money by investing in its top brands. Since becoming CEO in September 2020, Linda Rendle has leaned toward bold ideas to take market share and develop brands rather than going on the defensive. That strategy backfired, but it seems to be the right move to take Clorox to the next level now that the business climate has normalized.

Supporting future dividend raises

The simplest reason to be a long-term investor in Clorox is its exceptional portfolio of brands spanning several categories that can drive earnings and dividend growth.

Clorox operates across several end markets, including cleaning, professional products, bags, wraps, cat litter, grilling, food, water filtration, and natural personal care. The company owns dozens of brands, but some noteworthy standouts in addition to the flagship Clorox line are Brita, Burt's Bees, Glad, Hidden Valley, Kingsford, Pine-Sol, and Scoop Away.

Clorox's diversification smooths out cyclicality and allows the company to adjust to buyer behavior by addressing different end markets. Even when Clorox is struggling, it has been able to raise its dividend. In fact, Clorox has paid and raised its dividend for 40 consecutive years. And with a 3% yield, the stock offers investors a better passive income opportunity than the 2.6% yield they can get in low-cost consumer staples exchange-traded funds (ETFs) like the Vanguard Consumer Staples ETF or the mere 1.3% yield in the Vanguard S&P 500 ETF.

Clorox is a passive-income powerhouse

Clorox may not be a dirt cheap value stock based on near-term results, but long-term investors may still want to scoop up shares based on how it can leverage its portfolio over time. Clorox is giving investors a lot to be excited about, especially if it can continue converting advertising and promotional investments into results.

The shares could cool off given that they have rallied so much in a short period of time. But zoom out, and Clorox is a fairly valued high-yield dividend stock that can continue executing its strategy no matter what the economy does. Add it all up, and Clorox is a compelling, safe stock worth a closer look, especially for retirees or investors focused more on capital preservation than capital appreciation.

Should you invest $1,000 in Clorox right now?

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Daniel Foelber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.