Kimberly-Clark Corporation (KMB), together with its subsidiaries, engages in the manufacture and marketing of various health care products worldwide. The company operates in four segments: Personal Care, Consumer Tissue, K-C Professional & Other, and Health Care. The company is a dividend aristocrat which has increased distributions for 38 years in a row.
Over the past decade this dividend stock has delivered an annualized total return of 2% to its loyal shareholders.
The company has managed to deliver an average increase in EPS of 3.40% per year since 2000. Analysts expect Kimberly-Clark to earn $4.64 per share in 2010 and $5.01 per share in 2011. This would be a nice increase from the $4.52/share the company earned in 2009. The company’s EPS has been aided by the consistent share buybacks, which has led to a 3.10% average decrease in total shares outstanding per year. This means that over the past decade net income has been mostly flat.
The company has been trying to increase market share through product innovation and increased marketing. The company is under intense inflation pressure, but is closely. It has worked closely in streamlining operations in the sluggish North American market, eliminating positions and closing several facilities. Over the past several years, the company has only been able to pass on to consumers just half of the price increases that it experienced. Commodity prices could be detrimental to total costs at the company, as is the competitive nature of developed markets in which Kimberly-Clark does business. As with other consumer products companies, the growth is likely to come from developing and emerging markets, rather than developed markets. Developed markets could benefit from cost cutting and efficiency profits, which would decrease the total price of doing business. Under the company’s global business plan, announced in 2003, it is looking for annual sales growth in the 3%-5% range, EPS growth in the mid to high single digits and dividend increases in line with earnings growth. For more on the global business plan, check this document.
The company’s high return on equity has been on the rise since hitting a bottom at 25.70% in 2006. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.
The annual dividend payment has increased by 9.30% per year since 2000, which is substantially more than the growth in EPS. This dividend growth has been possible mostly due to the expansion in the dividend payout ratio. Without growth in earnings, future dividend growth would be limited. A 9% growth in distributions translates into the dividend payment doubling every eight years. If we look at historical data, going as far back as 1980, we see that Kimberly-Clark has actually managed to double its dividend every seven and a half years on average. I expect modest dividend growth of up to 6% per year in the future, which could translate in the dividend payment doubling every twelve years.
Over the past decade the dividend payout ratio has increased from 32.30% to over 53%. A lower payout is always a plus, since it leaves room for consistent dividend growth minimizing the impact of short-term fluctuations in earnings.
Currently, Kimberly-Clark is attractively valued at 14.40 times earnings, yields 4.20% and has a sustainable dividend payout. In comparison Procter & Gamble (PG) yields 3% and trades at a P/E of 15.90, while Colgate-Palmolive (CL) yields 2.60% and trades at a P/E of 18.80. The issue with Kimberly-Clark is that it has not been able to increase net income over the past decade. The reason behind the increase in earnings per share is because it consistently repurchased shares. In addition to that, the company was able to deliver dividend growth by paying a higher portion of earnings in the form of dividends. Over the next few years I see Kimberly-Clark raising dividends by 4% - 5% per year. The company is suited for investors seeking current income, but should be able to deliver decent total returns over the next decades. I would continue monitoring Kimberly-Clark and will consider adding to my position in the stock on dips.
Full Disclosure: Long KMB
- Becton, Dickinson and Company (BDX) Dividend Stock Analysis
- McCormick & Company (MKC) Dividend Stock Analysis
- Sysco Corporation (SYY) Dividend Stock Analysis
- Genuine Parts (GPC) Dividend Stock Analysis
As part of my monitoring process, I look at the list of dividend increases every single week. I then narrow the list down by focusing on co...
There are several REITs which seem to be punished excessively as of lately. A few, which have caught my eye are listed in more detail in the...
I look at the list of dividend increases every week, as part of my monitoring process. I then narrow the scope by focusing on companies tha...
I review the list of dividend increases every week, as part of an effort to monitor my holdings and review promising companies in action. ...
PepsiCo, Inc. (NYSE:PEP) manufactures, markets, and sells various foods, snacks, and carbonated and non-carbonated beverages worldwide. The ...
Energy output has boomed across the country, and this little-known dividend stock could make investors a fortune. New technologies have un...
As many of you know, brokerage Loyal3 is closing down in May . I received a lot of responses from readers, who shared their disappointment a...
I usually run a screen using my entry criteria over the list of dividend champions regularly. I do this in order to find attractively compa...
I just received notification that low cost broker Loyal3 is shutting down, effective May 22 2017. Loyal3 was a decent commission free alte...
Robinhood is a new broker, who lets customers purchase US stocks for no commission . Yes, that is true, customers pay no commissions when t...