Wednesday, April 25, 2018

Kimberly Clark (KMB) Dividend Stock Analysis

Kimberly-Clark Corporation (KMB), manufactures and markets personal care, consumer tissue, and health care products worldwide. The company operates in four segments: Personal Care, Consumer Tissue, K-C Professional, and Health Care. This dividend champion has paid dividends since 1935 and has increased them for 46 years in a row. The company’s peer group includes Procter & Gamble (PG), Colgate-Palmolive (CL), and Clorox (CLX).

The company’s last dividend increase was in January 2018 when the Board of Directors approved a 3.10% increase in the quarterly annual dividend to $1/share.

Over the past decade this dividend growth stock has delivered an annualized total return of  9.50% to its shareholders.

The company has managed to deliver a 4.60% average increase in annual EPS over the past decade. Kimberly-Clark is expected to earn $6.99 per share in 2018 and $7.40 per share in 2019. In comparison, the company earned $6.40/share in 2017.

The company has maintained a very consistent stock buyback program over the past year. Between 2008 and 2017, the number of shares decreased from 419 million to 355 million.

Kimberly-Clark recently unveiled a Global Restructuring Program. The restructuring is expected to generate annual cost savings of $500 to $550 million by the end of 2021 and accelerate the company's return to delivering its long-term growth objectives over time. The company will achieve objectives by eliminating 12% - 13% of its workforce and and closing 10 facilities, while expanding the production at others.

Kimberly-Clark has focused on increasing market share through product innovation and increased marketing. 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. Promotional competition could hurt margins. 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.

The annual dividend payment has increased by 6.70% per year over the past decade, which is higher than the growth in EPS. This has been achieved mostly due to the expansion of the dividend payout ratio.

A 7% growth in distributions translates into the dividend payment doubling every nine years on average. Since 1977, Kimberly-Clark  has managed to double dividends every eight years on average.Future dividend growth would have to track growth in earnings per share, and would likely be in the mid-single digits.

The dividend payout ratio has increased from 52% in 2007 to almost 61% in 2017. Looking at estimated earnings for 2018, the forward dividend payout ratio is 57%. 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 15.70 times earnings, yields 4% and has a sustainable distribution. The growth is slowing down, unfortunately. The company's business is pretty consistent however, and I like the low entry valuation. That being said, lower prices are always better for long-term buy and hold investors, who tend to buy regularly.

Relevant Articles:

Dividends versus Share Buybacks/Stock repurchases
S&P Dividend Aristocrats Index – An Incomplete List for Dividend Investors
Three stages of dividend growth
Not all P/E ratios are created equal
Six Exciting Dividend Increases for Long-Term Income Investors

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