Kimberly Clark Stock & Dividend Analysis
I recently reviewed the dividend safety and business prospects for consumer goods giant Procter and Gamble.
So, let’s stay in the same sector today. And, take a close look at the Kimberly Clark stock dividend.
We know Kimberly Clark is operating in a tough business climate. They face stiff competition.
Is the dividend safe? What do their business prospects look like?
Let’s run the company through a dividend stock review. I want to check out what is going on with the Kimberly Clark stock dividend.
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.
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 3.0%. That’s a nice dividend yield from my perspective.
I normally target stocks with dividend yields ranging from 3-5%. It is the sweet spot for me. Assuming I’m comfortable with the dividend safety. And, the dividend growth is adequate.
Kimberly Clark Dividend Growth
|1 Year||3 Years||5 Years||7 Years|
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 like what both 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!
Kimberly Clark Dividend Objectives
I like it when a company clearly states objectives for its 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”.
Let’s look at the business fundamentals next…
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 the current year.
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 payout ratio has run at 69% of free cash over the past 3 years. Their 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 and equity to retire outstanding stock from the market each year. This is also known as stock buybacks.
Stock buybacks 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 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’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 in a similar light to assign an investment-grade rating.
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 each of my dividend stocks.
The projection helps me judge stock valuation. And, it sets an expectation from which I can compare future dividend increases. And finally, 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 plant, 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% annual dividend growth rate from Kimberly Clark stock.
Kimberly Clark Stock Valuation
Next up, Kimberly Clark stock valuation.
The stock looks overvalued to me. This is especially true given the company’s low growth profile.
Let’s prove this out 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 the fair value of Kimberly Clark stock to be $118 per share.
Kimberly Clark Price To Earnings Ratio
Kimberly Clark’s’s stock price to earnings ratio checks in at nearly 22 times their projected 2020 earnings.
On a price to earnings basis, the stock looks overvalued for such slow growth prospects. As a comparison, the S&P 500 has a forward price to earnings ratio of 18.5 times.
It appears investors are willing to pay up for the current dividend, dividend safety and steady, but slow growth. So often, solid dividend growth stocks come at a premium price.
Kimberly Clark Dividend Stock Analysis Wrap Up
Kimberly Clark stock holds a small position in my dividend stock portfolio. Nothing particularly excites me about the company prospects. Especially at the current stock price level.
On the other hand, it is a steady, safe dividend growth stock. And, there is nothing wrong with that. So, holding is my current course of action.
I would only be 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.
In the consumer goods sector, I generally prefer Clorox for new investment dollars. 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 pricing pressures.
Related: P&G stock and dividend analysis
Related: Clorox stock and dividend analysis
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