Contrarian Take: This High-Yield Dividend Stock Is a Buy in May Despite Falling to an 11-Year Low

Shares of Clorox (NYSE: CLX) are hovering around an 11-year low after the cleaning products maker reported third-quarter fiscal 2026 earnings. Here's why management is confident that the business can turn around, and why Clorox could be an excellent high-yield value stock to buy now.

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Restoring confidence in Clorox's brands

Although Clorox is known for its flagship brand, the company has a diverse portfolio spanning cleaning and professional products, bags and wraps, cat litter, grilling, food, water filtration, and personal care. At its Q3 fiscal 2026 earnings call on May 1, Clorox highlighted strong results from its cleaning segment and international segment. But key categories like litter and food had poor results.

Clorox said that $100-per-barrel oil would translate into a $20 million to $25 million hit to quarterly gross profit, or 130 basis points of gross margin. Fiscal 2026 organic sales are expected to decline by 9%, compared to the previous guidance for a 5% to 9% decline.

The company has developed a bad habit of overpromising and underdelivering. However, some factors are outside its control. Clorox noted that promotional activity and deep discounting by competitors are weighing on sales. But the last thing premium brands (like those in the Clorox portfolio) want to do is get into a discounting battle with value brands.

Despite the weakness, Clorox expressed confidence in its brands, cost-cutting efforts, and turnaround. Clorox CEO Linda Rendle said the following on the earnings call:

I think the important part to note here is that even though the consumer is under stress, and you could argue a lot more stress now given what they're experiencing from gas prices and just the uncertainty of what's going on, they're still really resilient in our categories, and that's a good sign. We're seeing them continue to buy innovation. Private label shares did not increase this quarter. They're still shopping for brands.

Clorox made a big acquisition

Clorox has been criticized in recent quarters for the quality of its brand portfolio, especially as consumers shift to value. For example, Glad and Brita both have significant market share in their categories, but are challenged by private-label products and can be price-sensitive. Clorox is addressing this challenge through its acquisition of GOJO Industries for $2.25 billion in cash, which it announced in January. Clorox completed the acquisition on April 1. GOJO owns the Purell brand, as well as other health and hygiene solutions.

Given that cleaning products remain Clorox's best segment, the acquisition is a bet on what's working, rather than continuing to diversify into categories where Clorox isn't having as much success. On the May 1 earnings call, Clorox said investors can expect GOJO's quarterly revenue to remain around $200 million, increasing Clorox's total revenue by about 10%. Clorox expects synergies and margin expansion to eventually bring GOJO's margins closer to the broader company's average.

A high-yield stock at a compelling value

Clorox still has work to do to improve its overall portfolio, but its poor results are also driven by a challenging operating environment. The Purell brand should complement Clorox and Pine-Sol well. It also wouldn't be surprising to see Clorox continue to sell poor-performing brands and exit underperforming markets as it focuses on margin improvement.

Since Clorox's stock price is falling faster than its earnings are declining, Clorox now trades at just 13.7 times fiscal 2027 average earnings estimates and yields a sky-high 5.7%. All told, Clorox is an intriguing deep value stock for patient investors looking to generate passive income. However, some investors may want to keep Clorox on a watch list until management proves it can meet or exceed its guidance, rather than consistently revising its numbers down.

Daniel Foelber has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.