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Forget Clorox, Procter & Gamble Is a Better Consumer Staples Stock

By James Brumley - Jan 12, 2021 at 8:00AM

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Clorox is certainly nimbler and boasts better dividend growth. But deeper-pocketed P&G just figured out something big.

Credit has to be given where it's due. Clorox ( CLX 0.34% ) has carved out a nice piece of the competitive consumables market for itself, acquiring and divesting the right businesses while it cultivates growth with its established brands. It's more than just bleach. Clorox has leveraged its family of products ranging from Kingsford charcoal to Fresh Step cat litter to Liquid-Plumr drain cleaner (and more) into an ecosystem of must-have products you buy over and over again.

In a business where size and deep pockets matter in a major way, though, none can stand in the way of consumer staples behemoth Procter & Gamble ( PG 1.51% ). And now, its rival's worst nightmare is being realized. P&G is an old behemoth that's thinking -- and acting -- like a tiny start-up.

Small boxer fighting an enormous opponent's glove.

Image source: Getty Images.

Not yesteryear's Procter & Gamble

Consumers haven't likely noticed, but the way Procter & Gamble promotes its products has evolved quite a bit in just a couple of years. More of it is now being handled in-house rather than being outsourced to third-party agencies. And a little over a year ago CEO David Taylor started regularly using the term "smart audiences" as a way of describing the company's use of digital data to make advertising decisions, particularly online. In conjunction with this shift, Procter & Gamble enhanced its e-commerce platform into something that was at least somewhat competitive with better established players, even including the creation of new kinds of packaging that were better suited for online sales.

None of these changes have been easy for a decades-old company that's historically relied on more traditional marketing. But it was worth the effort. Whereas a couple of years ago only about 6% of Procter's revenue was driven online, for the quarter ending in September 2020 COO Jon Moeller noted that e-commerce sales were now roughly 11% to 12% of P&G's total revenue thanks to 50% year-over-year growth for its online operation.

The pandemic clearly helped on this front, but P&G was also clearly ready to capture online market share when consumers could have easily found a rival's product.

Deep pockets, too

But Procter & Gamble isn't just a big company with a powerful double-barreled distribution model. It's also the world's second-biggest advertiser and was only recently surpassed by Amazon, according to Ad Age. The consumer goods giant reported advertising expenses of $7.3 billion for the 12-month stretch, although Ad Age reckons the effective annual advertising spend actually exceeds $10 billion in any given year. Both figures dwarf the promotional reach of smaller Clorox, which only spent $675 million on advertising for the fiscal year ending in June of last year.

This is no small matter. As clever as Clorox may be with its marketing approach, Procter & Gamble can -- and does -- overwhelm Clorox's messaging. Now P&G's advertising is being done with the online consumer as well as the brick-and-mortar consumer in mind.

Clorox isn't bad, P&G is just better

None of this is to suggest Clorox stock is un-ownable. If you own it, your capital is far from doomed. Clorox is even (technically speaking) the better dividend stock, even though both P&G and Clorox currently boast the same dividend yield of just under 2.3%. Clorox's dividend has grown at an annualized clip of 7.5%, while Procter's compounded annual dividend growth rate is a more modest 3.4%. For income-minded investors, these little things can make a big difference as time marches on.

On balance, though, Procter & Gamble's sheer size balanced with its newfound understanding of online consumerism make it the better-positioned pick for the future. The company is going to be able to make investments in its own growth that Clorox just can't make.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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Stocks Mentioned

The Procter & Gamble Company Stock Quote
The Procter & Gamble Company
$152.15 (1.51%) $2.27
The Clorox Company Stock Quote
The Clorox Company
$168.73 (0.34%) $0.57

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