Company Description: Kimberly-Clark Corporation (KMB), together with its subsidiaries, engages in the manufacture and marketing of paper and health care products worldwide. The company owns several major brands including Huggies, Pull-Ups, Kotex, Depends, Kleenex, Cottonelle, Viva, and Scott.
Dividend Reliability A stock's dividend reliability is determined by its dividend payment history as well as its current financial health. Total of four points available.
- The number of Consecutive Dividend Payments - The longer a company has been paying a dividend, the more ingrained the dividend payment is part of the company culture and the less likely it would be removed.
10 to 30 Years = 1 Point
More than 30 Years = 2 Points
- Kimberly-Clark has paid a dividend for 26 Years. 1 Point
- Cash Flow Payout Ratio - The percentage of free cash flow that is paid out as dividends.
Less than 60% = 1 Point
- Cash flow payout ratio = 65%. 0 Points
- Debt to Total Capital - Too much debt can hinder dividend growth as cash is going to debt and interest payments. Total capital is a combination of debt and shareholders equity.
Less than 45 % = 1 Point
- Debt to total capital = 48%. 0 Points
Dividend Growth A stock needs to be growing its dividend on an annual basis. The growth of its dividend should be at a respectable rate, especially if the current yield is low. Total of four points available.
- Number of Consecutive Dividend Increases - The longer a company has been consistently raising a dividend, the more ingrained the dividend increase is part of the company culture and the less likely it would be changed.
10 to 20 Years = 1 Point
More than 20 Years = 2 Points
- Kimberly-Clark has raised its divided for 25 straight years. 2 Points
- 1 Year Cash Flow Payout Ratio <= Avg 5 Year - A cash flow payout ratio that is going up tells us that dividend payments are eating into the company's bottom line. This could signify a slowdown in dividend growth in the future or a slowdown in the companies earnings. Ideally we'd like the ratio to be less than or equal to the average 5 year payout ratio.
1 year cash flow ratio <= Avg 5 year = 1 Point
- 1 Year = 64% > Avg 5 Year = 57%. 0 Points
- 1 Year Dividend Growth Rate > Avg 5 Year - If the 1 year dividend growth rate is higher than the average 5 year, then we know the dividend growth is accelerating.
1 year dividend growth rate > Avg 5 year = 1 Point
- 1 Year Growth = 6.1% < Avg 5 Year = 7.4%. 0 Points
Fair Value If we're going to buy a stock, we don't want to purchase it went its overvalued. Total of 2 points available
- Current P/E < Avg 5 Year P/E - If the current P/E (price divided by earnings) is less than its average 5 year P/E, then we are getting the stock cheaper today than in the past.
Current P/E < Avg 5 Year P/E = 1 Point
- Current P/E = 16.8 > Avg 5 Year P/E = 15.8. 0 Points
- PEG < 1.5 - The PEG ratio (Price/Earnings To Growth ratio) is a valuation metric for determining the relative trade-off between the price of a stock, the earnings generated per share (EPS), and the company's expected growth. The lower the ratio the better.
PEG < 1.5 = 1 Point
- PEG = 2.56. 0 Points
Strengths - Kimberly-Clark has achieved strong brand recognition and customer loyalty to its products. It has a diversified business portfolio and its strong performance in the personal care segments supports top-line growth.
Weaknesses - Kimberly-Clark has a weak international presence which increases its business risk. Although Kimberly-Clark is large, it still lacks the scale of its key competitor Proctor & Gamble (PG).
Opportunities- New acquisitions and alliances would support the company’s global business plan strategy. An increasing preference for organic and natural personal care products could create higher margin opportunities. The aging baby boomer population should increase the market in adult diapers, of which Kimberly-Clark dominates with its Depends brand.
Threats - Economic conditions in the U.S. and Europe could have adverse affects on the company’s business. P&G, its much larger competitor, is able to put pricing pressure on Kimberly-Clark that could squeeze the company's margins. Kimberly-Clark’s bottom line is sensitive to fuel and wood pulp price increases.
Conclusion - Kimberly-Clark got 1 point for consecutive dividends and 2 points for consecutive dividend increases for a total score of 3/10 which makes it a weak dividend stock, which should be revisited after 1 year. Although Kimberly-Clark is rewarding investors with a 4% dividend yield, it did not perform well in my analysis. The recent run-up in stock price hurt its fair value and the increasing costs in wood pulp has clearly affected the company’s bottom line from last year. I allocated Kimberly-Clark to my portfolio a year ago when the stock price was hovering around $60 and its fundamentals were within the range I look for. A decrease in cash flow payout ratio and an increase in dividend growth is needed before I consider adding to my position.
Disclosure: I am long KMB.