Friday, March 2, 2012

Kimberly-Clark Corporation (KMB) Dividend Stock Analysis 2011

Kimberly-Clark Corporation (KMB), together with its subsidiaries, engages in the manufacture and marketing of health care products worldwide. The company operates in four segments: Personal Care, Consumer Tissue, K-C Professional & Other, and Health Care. This dividend aristocrat has paid uninterrupted dividends on its common stock since 1935 and increased payments to common shareholders every for 39 consecutive years.

The company’s last dividend increase was in February 2012 when the Board of Directors approved a 5.70% increase to 74 cents/share. Kimberly-Clark’s largest competitors include Procter & Gamble (PG), Colgate-Palmolive (CL) and Clorox (CLX).

Over the past decade this dividend growth stock has delivered an annualized total return of 5.70% to its shareholders.
The company has managed to deliver an 4.40% annual increase in EPS since 2001. Analysts expect Kimberly-Clark to earn $4.83 per share in 2011 and $5.25 per share in 2012. In comparison Kimberly-Clark earned $4.45 /share in 2010. The company has managed to consistently repurchase 3.10% of its outstanding shares on average in each year over the past decade.

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 under it’s FORCE plan. Kimberly-Clark plans on realizing $400 – 500 million in annual cost savings through 2013 with its FORCE plan to streamline operations and focus on best practices.

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 return on equity has mostly remained above 20% over the past decade, with a few exceptions in 2001 and 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 9.70% per year since 2001, which is higher than to the growth in EPS.

A 10% growth in distributions translates into the dividend payment doubling every seven years. If we look at historical data, going as far back as 1974 we see that Kimberly-Clark has actually managed to double its dividend every seven and a half years on average.

The dividend payout ratio has increased from 37% in 2001 to 59% in 2010. 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 18 times earnings, has a sustainable dividend payout and yields 4.10%.

Full Disclosure: Long KMB, CL, CLX, PG

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