Kimberly Clark Stock Analysis
I recently reviewed the dividend safety and business prospects for consumer goods giant Procter and Gamble. Let’s stay in the same sector today and take a close look at Kimberly Clark stock.
We know Kimberly Clark is operating in a tough business climate against stiff completion. Is the dividend safe? What do their business prospects look like? Specifically, let’s run them through a dividend deep dive to see what’s going on with the Kimberly Clark stock dividend.
Kimberly Clark is organized into three operating segments based on product groupings. It’s hard to get through the day without touching one of their products or a similar product marketed by their competitors. 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 it what it is. Specifically, kleenex, toilet paper and napkins. Nothing fancy here, but the type of stuff we all use every day.
Kimberly Clark brands in this area include:
This segment partners with businesses. They put Kimberly Clark products into the work place. Products like wipers, tissue, towels, apparel, soaps and sanitizers. You may have seen Kimberly Clark towel and soap dispensers in your work place bathrooms.
These brands include:
- Jackson Safety
Finally, the Kimberly Clark stock symbol is “KMB”. And KMB stock trades on the New York Stock Exchange.
KIMBERLY CLARK STOCK DIVIDEND YIELD
Kimberly Clark stock pays an annual forward dividend of $4.12 per share. Based on the recent KMB stock price, that dividend payout puts the Kimberly Clark dividend yield at 3.6%.
That’s a nice dividend yield from my perspective. I normally target stocks to purchase with yields ranging from 3-5%. That’s the sweet spot for me as long as I’m comfortable with the dividend growth rate and dividend safety.
KIMBERLY CLARK STOCK DIVIDEND GROWTH
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Dividend growth rates have slowed across the consumer goods sector in recent years. And Kimberly Clark is no exception. The low to mid-single digit percent increases are similar to what both P&G and Clorox have been delivering.
Furthermore, the trend hasn’t changed in 2019 for the Kimberly Clark stock dividend. Management announced a skimpy 3% increase early in the year.
On the brighter side, the recent dividend increase represents the 47th consecutive annual increase in the Kimberly Clark 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 few years. Dividend Kings have increased their dividend each year for 50 straight years! So let’s take a look at the business fundamentals and dividend metrics next.
Kimberly Clark will turn 150 years old in 2022.
They have devised a business strategy around this anniversary date called K-C Strategy 2022. Underlying this strategy is the assumption that growth in the categories they operate in will remain modest and similar to recent conditions.
With that in mind, the company’s objectives are as follows:
- Sales growth – 1 to 3 percent annually
- Adjusted earnings per share growth – mid-single digits annually
- Adjusted Return On Invested Capital – maintain at current level
- Dividend growth – in line with adjusted earnings per share growth
There is nothing spectacular here. We are not going to get filthy rich investing in this company.
However, it is nice to see dividend growth mentioned prominently in the strategic plan. Reading between the lines, the strategy calls for 4-6% dividend growth annually.
Revenue growth has been nonexistent over the past few years. On an absolute basis, it has bounced around just above $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.
There doesn’t seem to be much relief in sight. Management expects slightly negative revenue growth in their projections for the coming year.
KIMBERLY CLARK STOCK DIVIDENDS AND EARNINGS PER SHARE
Recent accounting earnings have been a little choppy. 2018 included a large one time charge for a global restructuring 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 their 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 during 2019, projected earnings look more than sufficient to cover the dividend.
FREE CASH FLOW
When accounting earnings are clouded with one-time adjustments, I like to check the dividend against free cash flow.
Whether you look at the dividend payout against accounting earnings or free cash flow, it looks safe. The payout ratio is around 60% in either case.
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 an adequate sign of financial stability and the company’s ability to pay its obligations as they come due.
The company employs a significant amount 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 and equity to retire outstanding stock from the market each year. This is also known as stock buy backs.
Stock buy backs are great to see. But I actually would prefer if some of this cash allocated to repurchasing shares was allocated to dividend growth. However, I do not see any change in capital allocation practices in this regard based on Kimberly Clark’s 2022 strategic plan.
Finally, the use of financial leverage is not a concern for me as it relates to Kimberly Clark stock. They have stable demand for their products. And a long history of consistent earnings and cash flow generation.
Apparently Moody’s and S&P see it in a similar light to assign an investment grade rating.
KIMBERLY CLARK STOCK VALUATION
Lastly, Kimberly Clark’s stock valuation looks pretty reasonable. It trades at 16 times projected 2019 earnings. It is about right in my opinion for a stable dividend paying company experiencing slow growth.
KIMBERLY CLARK STOCK – WRAP UP
Kimberly Clark stock holds a small position in my dividend stock portfolio. Nothing particularly excites me about the company prospects. However, it is a steady dividend growth stock and there is nothing wrong with that.
I would be interested in adding to my position at or below $103 per share. That will provide a 4% dividend yield with the potential for 4-6%
annual dividend growth. It’s not a get rich quick investment, but I am okay sticking with slow and steady to win my money race.
Related: P&G stock and dividend analysis
Related: Clorox stock and dividend analysis
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