Kimberly Clark Stock & Dividend Analysis
It’s time to take a close look at Kimberly Clark stock and the Kimberly Clark stock dividend.
Kimberly Clark is operating in a tough business climate. They face stiff competition in retail consumer goods stores.
Is the dividend safe? Is Kimberly Clark a good stock to buy? Are Kimberly Clark’s shares reasonably priced? What do the business prospects look like for this Dividends Diversify model portfolio holding?
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So, let’s run Kimberly Clark through a dividend stock review. I want to check out what is going on with the Kimberly Clark stock dividend. And answer all of the questions I just asked.
We will also check in with Simply Investing to see what they think. I subscribe to the Simply Investing report.
Simply Investing has an excellent analysis of company prospects for dividend investors. And, it is a great resource for quality dividend stock investment ideas.
Kimberly Clark is organized into three operating segments. The segments are based on product groupings.
It’s hard to get through the day without touching one of their products or a similar product marketed by a competitor.
So let’s first review what Kimberly Clark develops, manufactures and sells to us as a consumer.
Personal Care Brands
Included in this segment are solutions and products such as disposable diapers, training, and youth pants, swim pants, baby wipes, feminine and incontinence care items.
These products are sold under many brand names some of which include:
- Little Swimmers
Products in the consumer tissue segment mainly include facial and bathroom tissue, paper towels and napkins.
Let’s call this what it really is: kleenex, toilet paper, and napkins. Nothing fancy here, but the type of stuff we all use every day. And as you might know, there has been a recent run on toilet paper for domestic use.
Kimberly Clark brands in this area include:
The K-C Professional segment partners with businesses and institutions. They put Kimberly Clark products into the workplace.
Products like wipers, tissue, towels, apparel, soaps, and sanitizers. You may have seen Kimberly Clark towel and soap dispensers in your workplace bathrooms.
These brands include:
- Jackson Safety
Revenue Share By Business Segment
The chart below shows the share of Kimberly Clark’s revenue by segment.
Finally, for the interested investor. The Kimberly Clark stock symbol is “KMB”. And KMB stock trades on the New York Stock Exchange.
Kimberly Clark will turn 150 years old in 2022.
They have devised a business strategy around this anniversary date called K-C Strategy 2022. The strategy assumes that category growth will remain modest. Similar to conditions in recent years.
From their strategy, Kimberly Clark’s mid-term financial objectives are as follows:
- Sales growth – 1 to 3 percent annually
- Earnings per share growth – mid-single digits annually
- Return On Invested Capital – maintain at the current level
- Dividend growth – in line with earnings per share growth
This is not a spectacular growth story. We are not going to get filthy rich investing in this company.
However, it is nice to see the dividend growth objectives mentioned in the strategic plan.
Kimberly Clark Dividend Yield
Kimberly Clark stock pays an annual forward dividend of $4.28 per share.
Based on the recent KMB stock price, that payout puts the Kimberly Clark dividend yield at 3.3%.
According to the Simply Investing Report, KMB’s average dividend yield, over the last 20 years is 3.24%. Given the current yield, this indicates that Kimberly Clark’s shares may be reasonably priced.
More on Kimberly Clark stock value in just a bit. Let’s stay with the dividend metrics for right now.
Kimberly Clark Dividend Growth
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Dividend growth rates have slowed across the consumer goods sector. Kimberly Clark is no exception to this trend.
The low to mid-single-digit percent increases are similar to what P&G and Clorox have been delivering.
Furthermore, the trend hasn’t changed in 2020. Management announced just a 3.9% increase early in the year.
Consecutive Years Of Dividend Growth
On the brighter side, the recent dividend increase represents the 48th consecutive annual increase in the Kimberly Clark stock dividend.
That’s a long streak and I do not expect it to be broken any time soon. In fact, I expect KMB to be a dividend King in a couple of years. Dividend Kings have increased their dividends each year for 50 straight years!
Companies that have achieved Dividend King status are great additions to any dividend income portfolio. For the reliable dividend income, they provide.
Kimberly Clark Dividend Objectives
I like it when a company has clearly stated plans for future dividend payments. Not all companies do this. But, Kimberly Clark does not disappoint me here.
They state in their mid-term financial objectives that they plan to “generally increase the dividend in line with earnings per share growth”.
So, let’s look at the business fundamentals to see what earnings per share growth might look like…
Kimberly Clark Revenue
Revenue growth has been nonexistent over the past few years. On an absolute basis, it has bounced around $18 billion since 2015.
Branded consumer products businesses have been facing major headwinds. Organic growth rates have been weak as consumers shift to lower-cost private label products.
Furthermore, 50% of revenue is generated outside the US. There is stiff competition from local brands in these foreign markets. And foreign currency translation has been a headwind at times.
There doesn’t seem to be much relief in sight. Management expects revenue to be about the same as 2019 in its projections for 2020.
Kimberly Clark Stock Dividends & Earnings Per Share
Recent accounting earnings have been a little choppy. 2018 included a large one-time charge for a global cost reduction program. Absent that charge, 2018 earnings would have been similar to 2017.
It is good to see the company restructuring and taking costs out of their system. This will better align with the realities of the global market place and the potential negative effects of commodity price inflation.
With the restructuring charge out of the way and savings from this program kicking in, projected earnings look more than sufficient to cover the dividend.
With that said, Kimberly Clark’s dividend consumes about two-thirds of earnings. This is more commonly known as the dividend payout ratio.
Kimberly Clark Free Cash Flow
When accounting earnings are clouded with one-time adjustments, I like to check the dividend against free cash flow.
The Kimberly Clark dividend payout ratio has run at 69% of free cash over the past 3 years. It appears they have plenty of cash flow to cover their dividends. And excess cash beyond the dividend goes to share repurchases.
Kimberly Clark Credit Rating
Kimberly Clark has an A2 and A credit rating from Moody’s and S&P, respectively.
These ratings represent “investment grade-low credit risk”. This is a solid sign of financial stability and the company’s ability to pay its obligations as they come due.
Kimberly Clark Financial Position
The company employs large amounts of financial leverage. They finance nearly 100% of assets with debt and other liabilities.
Contributing to the financial leverage is the company’s use of cash to retire outstanding stock from the market each year. This is also known as share buybacks.
Share buybacks are great to see. But I actually would prefer if some of this cash was allocated to dividend growth.
However, I do not see any change in capital allocation practices based on Kimberly Clark’s strategic plan.
Finally, the use of financial leverage is not a big concern for me as it relates to Kimberly Clark’s stock. They have a stable demand for their products. And a long history of consistent earnings and cash flow generation.
Apparently Moody’s and S&P see it similarly. They assign investment-grade credit ratings to the company.
Kimberly Clark Dividend Safety
I base my judgment on dividend safety using the information discussed so far.
- Business fundamentals
- Dividend payout ratios
- Historical dividend track record
- Credit ratings
- Financial position
Whether you look at the dividend payout against accounting earnings or free cash flow, it looks well covered. No issues here.
Other than the use of financial leverage, all areas point to adequate dividend safety. So, I consider Kimberly Clark’s dividend safe from a reduction for the foreseeable future.
Kimberly Clark Dividend Growth Forecast
I make a dividend growth projection for every dividend growth stock that I own.
The projection helps me judge if Kimberly Clark’s shares are reasonably priced. Furthermore, it sets an expectation from which I can compare future dividend increases. Finally, it helps me plan for my future dividends to fund living expenses.
To make my forecast, I look at:
- Historical dividend growth
- Dividend payout ratios
- Management’s dividend policy when provided
- Business fundamentals
- Company growth strategy
Kimberly Clark makes my dividend growth forecast pretty easy. According to their strategic plan, they expect to grow earnings in the mid-single-digit percentages each year. And their desire is to grow the dividend at the same rate as earnings.
Putting these pieces together, I expect a 4-6% future annual dividend growth rate from Kimberly Clark stock.
Kimberly Clark Stock Valuation
Next up, Kimberly Clark stock valuation.
Are Kimberly Clark’s Shares Reasonably Priced?
Investors are usually willing to pay a high price for the current dividend, dividend safety and steady, but slow growth Kimberly Clark stock offers. So often, slow and steady stocks come at a premium price.
The valuation methods I discuss below give a mixed view. But based on my analysis and experience, I judge Kimberly Clark’s shares to be reasonably priced.
Let’s dive deeper by looking at value in several different ways.
Kimberly Clark Dividend Discount Model
The single-stage dividend discount model considers several factors I have discussed thus far.
- Current annual dividend payment – $4.28 per share
- Projected dividend growth – 5%
- My desired annual return on investment – 9%
Using these assumptions, the dividend discount model calculates the fair value at $112 per share.
Morningstar Fair Value Estimate
The investment analysis firm Morningstar believes Kimberly Clark stock to be reasonably priced at $118 per share. Morningstar calls this their fair value estimate.
Kimberly Clark Price To Earnings Ratio
Kimberly Clark’s stock price to earnings ratio checks in at nearly 20 times their projected 2020 earnings. On a price to earnings basis, Kimberly Clark stock trades in line with the overall US stock market valuation.
As a comparison, the S&P 500 has a forward price to earnings ratio of 20 times. But realize 2020 earnings for S&P 500 companies are difficult to estimate right now.
Valuation From The Simply Investing Report
The Simply Investing Report has strict rules to judge a stock’s value. Those rules are:
- Stock price to earnings ratio must be 25 or below
- The current dividend yield must be higher than the average dividend yield over the past 20 years
- Stock price to book ratio should be 3 or less
If a stock meets these 3 rules, it is considered a good value. Otherwise, it is considered overvalued.
Currently, Kimberly Clark stock is considered undervalued by the Simply Investing Report.
The Simply Investing Report is an excellent resource. It crunches all the numbers for you. And recommends what stocks are a good buy each month. I use it to augment my own research.
Learn more from Simply Investing.
Kimberly Clark Dividend Stock Analysis Wrap Up
Kimberly Clark stock holds a small position in my dividend stock portfolio. It is also a holding in this popular dividend stock exchange-traded-fund that I also own.
Is Kimberly Clark A Good Stock To Buy?
Kimberly Clark, a soon to be Dividend King, is one of the most stable stocks you can invest in. And I think it is currently trading at a reasonable price.
I plan to hold and would be very interested in adding to my position at or below $110 per share. That price will provide a 4% dividend yield with the potential for 4-6% annual dividend growth.
As for stocks in the consumer goods sector, I also like Clorox. Clorox has better-differentiated products, in my opinion. And they dominate the categories in which they compete.
In contrast, Kimberly Clark’s products tend to be more commoditized. And subject to greater pricing pressures.
Other Articles & Resources Related To Kimberly Clark Stock & Dividend Investing
- Procter & Gamble stock and dividend analysis
- Clorox stock and dividend analysis
- Simply Investing Report
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