With its stock hovering near a 52-week low, the Clorox Company (NYSE:CLX) is currently offering investors a tantalizing 5.7% dividend yield, which is more than five times higher than the S&P 500 average of 1.1%. But is this generous payout too good to be true, or is it a rare opportunity to lock in plenty of passive income?
On April 30, the company reported its most recent quarterly results, offering investor some insight into just how strong its financials are right now. From a growth perspective, Clorox reported flat net sales of $1. 7 billion compared to the year-ago quarter, while organic sales slipped by 1%. More concerning for income-focused investors is that the company slashed its outlook for the full fiscal year. Clorox now expects fiscal 2026 net sales to decline by about 6%. While Clorox has never been much of a growth stock, the poor outlook doesn't give investors any added confidence about its future.
What's worse, is that the company projects that its full-year diluted EPS for the fiscal year, which ends in June, could be down as much as 27%. EPS could be as low as $4.78, which is problematic given that the company pays an annual dividend of $4.96, potentially putting its payout ratio well over 100%.
While the 5.7% yield is incredibly appealing, the underlying business is navigating severe operational headwinds. Although a cut to the dividend hasn't been announced, there's no assurance that the payout will remain intact given the company's troubling financial performance. For dividend investors, there are many other, safer dividend stocks to buy rather than Clorox. Its high payout may not be worth the risk.
