Jim Cramer: Want Return of Capital? A Stock Can Be a Bond

NEW YORK (Real Money) -- Execution matters. But maybe deployment of capital can matter even more.

I keep thinking how Donald Knauss, the CEO of Clorox (CLX) , could account for the stellar performance of his company's stock without ever increasing the revenue in any substantial way. He said it in one word: dividends.

Shareholders want a return of capital, and they deserve it. Those old brands throw off so much capital that there's enough room for invention and dividends. His consistent hiking of the dividend has allowed a company with basically flat revenue over the past five years to go from a $7.7 billion market capitalization to a $13 billion one.

Why does this mean so much? Because those people who have spent the better part of their work lives pooh-poohing this market over the last five years, saying it is all about the Fed don't understand that it's still fair to make money being a bond-market equivalent.

Knauss said it was his job as CEO to create an environment that makes workers thrive -- who then do the most with the hand Clorox has, and then return as much money as possible to shareholders to give them a bond-market equivalent stock.

In other words, use the cash flow to the shareholders' advantage in order to create a steady alternative to U.S. Treasuries in a time when the industry has little to no growth.

It isn't not like Clorox has no growth. It can put on organic growth of 2% to 3%. But there has to be a point when pundits realize that just because a company doesn't have tremendous revenue doesn't mean its stock can't trade higher on the strength of its bountiful cash flow. By getting the most out of its brands and people, Knauss, who is retiring, got the most out of his stock.

Three years ago, activist investor Carl Icahn tried to take a run at Clorox to get it to put itself up for sale. He tried to challenge the company and put up his own slate of directors. He talked about a $78 bid as the stock traded in the $60s. But his bid was not seen as credible, and Knauss had tremendous support from the board and shareholders to show that he could produce value well in excess of the bid.

Three years later, you have a stock that's gone up about $30 on a $70 basis, and now stands at $101 -- far better than Icahn's bid would have gotten you.

And it wasn't done with smoke and mirrors. It was done with solid, consistent dividend increases -- a sustainable way to achieve higher prices for those you work for: the shareholders.

Action Alerts PLUS, which Cramer co-manages as a charitable trust, has no positions in the stocks mentioned.

At the time of publication, Cramer had no position in any of the stocks mentioned.

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