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Investors have long used Clorox to disinfect their portfolio from market downturns. Photo: Flickr via Conrad

 
You don't need to be a neat freak to appreciate the cleaning arsenal Clorox (NYSE:CLX) provides consumers to tackle dirty jobs, but dividend investors who also want to clean up will admire the consumer products giant not being a one-trick pony as it owns a broad portfolio of popular and well-known brands.
 
That deep bench of consumer products that includes Formula 409, Tilex, Glad sandwich bags and cling wrap, Hidden Valley dressings, and Brita water filters ensures it has many touch points in a customer's life, meaning they'll keep coming back for more. 
 
But there's more to Clorox than popular brands that makes it a popular stock for investors, but here are a few reasons why they might reconsider.
 
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A stable of iconic brands, though they're still losing share to rivals. Image: Clorox

 
1. Diminishing brand value.
Clorox brands make it a defensive stock, one that can weather downturns in the economy and the market, but might lag in the recovery. But the value of its brands have been diminished in both market share and in value.

In 2012, Clorox was 94th on the list of the world's 100 most powerful brands. Today it doesn't appear at all. Brand consultancy Interbrand also annually ranks the value of a brand as an asset to a company. While other household consumer goods appear on the list, including Gillette (No. 18) and Colgate (50), Clorox does not and never has.  

In its latest quarter Clorox reported its market share decreased 0.2 points in several categories compared to the year-ago quarter as competition grew, particularly in cat litter and water filtration. It did gain share in charcoal, laundry, and home care, which remain its largest segments. And though it continues to dominate the bleach market where it still owns half of all the share, but it lost volume growth from last year. 

2. Dividend growth is slowing.
Clorox has been around for more than 100 years and began paying dividends in 1968, giving it a 46-year run of returning value to shareholders. 
 
Perhaps equally important is its consistent record of increasing the payout. As it has done every year since 1977, Clorox raised its annual cash dividend, with the latest round announced in the fourth quarter mounting to a near 4% boost. That brought the annual dividend to $2.96 pershare from $2.84, which at the time had it yielding 3.3%, one of the highest rates in Clorox's history.
 

Dividends
A record of ever-rising dividend payments. Image: Clorox

Over the past 10 years, Clorox has increased the payout by an average of 11%, and it's up 8% annually over the last five.
 
A consistent dividend, plus one that's been regularly raised, is important because income investors can have greater assurance the company will be loathe to cut it in the future. There are no guarantees, of course, and stocks with long histories have been forced to cut and even suspend their payouts, but companies with slow, consistent growth like Clorox are less prone to such vagaries.

3. An increasing payout ratio.
With a payout ratio that recently jumped to 74%, Clorox pushes up against what is often viewed as a ceiling for a safe payment. 

Calculated by dividing the amount of dividends paid out by a company's net income, the payout ratio is a key metric used to determine whether a dividend is sustainable. Lower ratios are typically preferred to higher ones, and where a payout ratio over 100% means the company is paying out more in dividends than it makes in profits, one below 75% indicates there's generally room for both organic share price appreciation and future dividend growth.

4. Valuation is getting pricey.
Clorox trades at a fairly lofty 26 times estimated 2015 earnings, though its dividend yields 2.9%, which means it's still a better bet than its own bonds due in 2017 that are yielding 1.5% or five-year U.S. Treasurys that are yielding 1.6%. 

While the latest increase of 4% is below its average five- and 10-year averages, analysts anticipate its earnings will grow at around 5.5% over the next five years, and that puts the hike more in line with that long-term rate, though still low.

Foolish takeaway
Since 2011, Clorox has grown its free cash flow at a better than 11% rate, and ultimately its the cash left over after paying for investments in the business that pays for the dividends.
 
The coin-drop nature of Clorox's business -- consumers aren't going to stop needing cleaning products and its household goods, particularly in a recession -- means they'll be returning to the consumer goods leader again and again.
 
There are risks to an investment in Clorox, and it has weathered many storms before as people predicted it would falter, so going in with both eyes open will serve investors well.

Follow Rich Duprey's coverage of all the most important news and developments in retail and consumer goods. He has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.