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Summary

  • Kimberly-Clark hit a new 52-week high yesterday and the stock is up 22% from its recent low.
  • KMB is one of our "stocks to watch" in the Consumer Staples sector.
  • KMB is currently trading at 20.27x trailing earnings, which represents 5.7% and 17.0% premiums to the company's respective 3-year and 10-year historical averages.

We are in the midst of our DIY Dividend Investors Club series which is dedicated to the open discussion and analysis of building and managing a long-term dividend portfolio. The goal of the series is to build a dividend portfolio "watch list" by sector (based on the 9 major sectors in the S&P 500 as well as alternative sectors like MLPs, REITs and BDCs).

Kimberly-Clark (NYSE:KMB) is one of our "stocks to watch" in the Consumer Staples sector and this article highlights some key information and analysis from our Buy Zone Report for KMB.

Kimberly-Clark Business Overview (source: S&P Capital IQ)

Kimberly-Clark Corporation, together with its subsidiaries, manufactures and markets personal care, consumer tissue, and health care products worldwide. It operates through four segments: Personal Care, Consumer Tissue, K-C Professional, and Health Care. The company sells its products directly to supermarkets, mass merchandisers, drugstores, warehouse clubs, variety and department stores, and other retail outlets, as well as through other distributors and e-commerce. It also sells products for away-from-home use through distributors and directly to manufacturing, lodging, office building, food service, health care establishments, and public facilities. The company was founded in 1872 and is headquartered in Dallas, Texas.

Parsimony Rating

The core of our investment philosophy is to buy great stocks at reasonable prices and we use a combination of fundamental and technical analysis to determine which stocks to buy and when to buy them.

We created our ranking system, which ranks over 750 U.S. dividend stocks on a monthly basis, to help us find the best dividend stocks. In our experience, if you rank all of the stocks in a universe against their peers on a consistent basis, it becomes clear which companies are the strongest and which offer the best investment opportunities going forward. Our composite rating is derived by ranking each stock based on 28 key fundamental and technical data points in five sub-rating categories.

The table below for KMB highlights some of the key data points that we look at when determining our rating.

As highlighted in the table above, KMB has a solid overall Parsimony Rating of 92, primarily driven by high ratings for Risk/Reward Profile (89) and Dividend Track Record (90).

KMB has a low beta (0.23) and the stock has exhibited low volatility in the past. In addition, KMB has a nice dividend yield of 3.0% and it has delivered shareholders a 170% total return over the past 5 years.

KMB is a dividend aristocrat with stable 5- and 10-year dividend growth rates of 6.9% and 8.7%, respectively. As shown in the chart below, KMB has raised its quarterly dividend 5 times in the past 20 quarters.

Valuation Analysis

Valuation is a key factor in determining our "Buy Zones."

We use our rating system to determine WHICH stocks to buy and we use our "Buy Zone" reports to determine WHEN to buy them. We focus on four key levels of support when determining a "Buy Zone":

  • Valuation - Support levels based on historical valuation multiples.
  • Technical - Support from short and long-term trend lines (i.e., 10-week and 40-week moving average).
  • Volatility - Target correction levels based on historical volatility and maximum draw down.
  • Yield - Support levels based on forward dividend yield.

Below is a summary valuation analysis for KMB:

As highlighted above, KMB is currently trading at 20.27x trailing earnings, which represents 5.7% and 17.0% premiums to the company's respective 3-year and 10-year historical averages.

Based on consensus estimates for FYE 12/31/14, KMB is currently trading at 18.48x forward earnings, which represents -3.6% and 6.7% premiums to the company's respective 3-year and 10-year historical averages.

Is Kimberly-Clark In The "Buy Zone"?

KMB just hit a fresh 52-week high and it currently trades 8.8% above the top range of its Buy Zone. Ideally, we would like to purchase KMB under $104.00 (which would equate to a forward P/E ratio around 17.0x and a forward yield around 3.25%).

Conclusion

Kimberly-Clark has been a stable dividend stock for investors, but its dividend growth rate has slowed recently (last hike was only 3.7%) and we don't believe the stock should be trading for the premium it has in the past. While we don't recommend buying more at this level (due to valuation), we will consider buying a pullback when the stock is more fairly valued.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Source: Kimberly-Clark Hits A New 52-Week High: Buy, Sell, Or Hold?