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"Many highly intelligent people are poor thinkers. Many people of average intelligence are skilled thinkers. The power of a car is separate from the way the car is driven."

Edward Bono

Kimberly-Clark manufactures and markets healthcare products worldwide. It operates in four segments: Personal care, consumer tissue, K-C professional and other, and healthcare.

We like Kimberly-Clark for the following reasons:

EPS is projected to increase from $4.80 in 2011 to $51.3 in 2012 and $5.49 in 2013.

It is one of the leading manufacturers of health and hygiene products in the world with revenues in excess of $20 billion.

It has a stellar record of returning cash to shareholders via consistent dividend payments. It has consecutively increased dividends for 37 years. From 2008-2011, the company utilized cash reserves of $950 million, $986 million, $1.06 billion and $1.09 billion, respectively, toward dividends. Management expects to implement another increase effective from April 2012.

In 2011 it purchased roughly 19 million shares at a cost of $1.24 billion and in 2012 it expects to repurchase roughly $900 million-$1.1 billion worth of shares.

Its cost-cutting program known as FORCE (focused on reducing costs everywhere) has led to savings of $240 million in 2009, $370 million in 2010 and over $260 million in 2011. It expects to save an additional $150-$200 million in 2012.

Reasons to be bullish on Kimberly Clark (KMB):

  • A very good levered free cash flow of $1.92 billion.
  • For a mature company, it has a decent five year sales growth rate of 4%.
  • Net Income decreased slightly from $1.8 billion in 2009 to $1.59 billion in 2011, but cash flow per share increased from $6.62 in 2009 to $7.63 in 2011.
  • Sales increased from $19.1 billion 2009 to $20.8 billion in 2011.
  • Annual EPS before NRI increased from $4.24 in 2007 to $4.80 in 2011.
  • A decent dividend yield of 4%.
  • A 5 year dividend growth rate of 7.03%.
  • A good payout ratio of 58%.
  • An excellent five year average payout ratio of 55%.
  • A projected EPS growth rate for the next 3-5 years of 6.5%.
  • An excellent five year ROE average of 34.6%.
  • A good interest coverage ratio of 8.56.
  • A decent free cash flow yield of 4.7%.
  • It has a decent total three year return of 70%.
  • It has projected growth rate of 6.3% and 8.4% for 2012 and 2013 respectively.
  • $100K invested for 10 years would have grown to $194K; if dividends were reinvested the rate of return would be much higher.

Many key ratios will be covered in this article and investors would do well to get a handle on some of the more important ones which are dealt with below.

Long-term debt-to-equity ratio is the total long term debt divided by the total equity. The amount of long-term debt a company carries on its balance sheet is very important for it indicates the amount of money a company owes that it doesn't expect to pay off in the next year. A balance sheet that illustrates that long term debt has been decreasing for a few years is a sign that the company is doing well. When debt levels fall, and cash levels increase, the balance sheet is said to be improving and vice versa. If a company has too much debt on its books, it could end up being overwhelmed with interest payments and risk having too little working capital which could in the worst case scenario lead to bankruptcy.

Operating cash flow is generally a better metric than earnings per share because a company can show positive net earnings and still not be able to properly service its debt. The cash flow is what pays the bills.

The payout ratio tells us what portion of the profit is being returned to investors. A payout ratio over 100% indicates that the company is paying out more money to shareholders than they are making. This situation cannot last forever. In general if the company has a high operating cash flow and access to capital markets, they can keep this going on for a while. As companies usually only pay the portion of the debt that is coming due and not the whole debt, this technique/trick can technically be employed to maintain the dividend for some time. If the payout ratio continues to increase, the situation warrants close monitoring as this cannot last forever. If your tolerance for risk is low, look for similar companies with the same or higher yields, but with lower payout ratios. Individuals searching for other ideas might find this article to be of interest - 5 Strong Dividend Plays For A Pullback.

Current Ratio is obtained by dividing the current assets by current liabilities. This ratio allows you to see if the company can pay its current debts without potentially jeopardizing future earnings. Ideally the company should have a ratio of 1 or higher.

Price to free cash flow is obtained by dividing the share price by free cash flow per share. Higher ratios are associated with more expensive companies and vice versa. Lower ratios are generally more attractive. If a company generated $400 million in cash flow and then spent $100 million on capital expenditures, then its free cash flow is $300 million. If the share price is $100 and the free cash flow per share are $5, then the company trades at 20 times-free cash flow. This ratio is also useful because it can be used as a comparison to the average within the industry. This gives you an idea of how the company you are interested in holds up to the other companies within the industry.

Interest coverage is usually calculated by dividing the earnings before interest and taxes for a period of one year by the interest expenses for the same time period. This ratio informs you of a company's ability to make its interest payments on its outstanding debt. Lower interest coverage ratios indicate that there is a larger debt burden on the company and vice versa. For example if a company has an interest ratio of 11.8, this means that it covers interest expenses 11.8 times with operating profits.

Price to tangible book is obtained by dividing share price by tangible book value per share. The ratio gives investors some idea of whether they are paying too much for what would be left over if the company were to declare bankruptcy immediately. In general stocks that trade at higher price to tangible book value could leave investors facing a great percentage per share loss than those that trade at lower ratios. The price to tangible book value is theoretically the lowest possible price the stock would trade to. Additional key metrics are addressed in this article - Sina: A Good Play, But Better Plays Abound.

Company: Kimberly Clark

Levered free cash flow = $1.92 billion.

Basic Key ratios

  1. Percentage Held by Insiders = 0.85
  2. Number of Institutional Sellers 12 Weeks = 3

Growth

  1. Net Income ($mil) 12/2011 = 1591
  2. Net Income ($mil) 12/2010 = 1843
  3. Net Income ($mil) 12/2009 = 1884
  4. 12months Net Income this Quarterly/12 months Net Income 4Q's ago = -13.67
  5. Quarterly Net Income this Quarterly/same Quarter year ago = -18.5
  1. EBITDA ($mil) 12/2011 = 3551
  2. EBITDA ($mil) 12/2010 = 3606
  3. EBITDA ($mil) 12/2009 = 3634
  4. Net Income Reported Quarterlytr ($mil) = 401
  5. Annual Net Income this Yr/ Net Income last Yr = -13.67
  6. Cash Flow ($/share) 12/2011 = 7.63
  7. Cash Flow ($/share) 12/2010 = 6.75
  8. Cash Flow ($/share) 12/2009 = 6.62
  1. Sales ($mil) 12/2011 = 20846
  2. Sales ($mil) 12/2010 = 19746
  3. Sales ($mil) 12/2009 = 19115
  1. Annual EPS before NRI 12/2007 = 4.24
  2. Annual EPS before NRI 12/2008 = 4.06
  3. Annual EPS before NRI 12/2009 = 4.72
  4. Annual EPS before NRI 12/2010 = 4.68
  5. Annual EPS before NRI 12/2011 = 4.8

Dividend history

  1. Dividend Yield = 4
  2. Dividend Yield 5 Year Average 12/2011 = 3.92
  3. Dividend Yield 5 Year Average 09/2011 = 3.92
  4. Annual Dividend 12/2011 = 2.8
  5. Annual Dividend 12/2010 = 2.64
  6. Forward Yield = 4
  7. Dividend 5 year Growth 12/2011 = 7.03

Dividend sustainability

  1. Payout Ratio 06/2011 = 0.58
  2. Payout Ratio 5 Year Average 12/2011 = 0.55
  3. Payout Ratio 5 Year Average 09/2011 = 0.55
  4. Payout Ratio 5 Year Average 06/2011 = 0.55
  5. Change in Payout Ratio = 0.03

Performance

  1. Percentage Change Price 52 Weeks Relative to S&P 500 = 8.42
  2. Next 3-5 Year Estimate EPS Growth rate = 6.55
  3. EPS Growth Quarterly(1)/Q(-3) = -117.43
  4. ROE 5 Year Average 12/2011 = 34.66
  5. ROE 5 Year Average 09/2011 = 34.66
  6. ROE 5 Year Average 06/2011 = 34.44
  7. Return on Investment 06/2011 = 16.9
  8. Debt/Total Cap 5 Year Average 12/2011 = 50.63
  9. Debt/Total Cap 5 Year Average 09/2011 = 50.63
  10. Debt/Total Cap 5 Year Average 06/2011 = 49.87
  1. Current Ratio 06/2011 = 1.16
  2. Current Ratio 5 Year Average = 1.16
  3. Quick Ratio = 0.73
  4. Cash Ratio = 0.25
  5. Interest Coverage Quarterly = 8.56

Valuation

  1. Book Value Quarterly = 14.03
  2. Price/ Book = 5.28
  3. Price/ Cash Flow = 9.71
  4. Price/ Sales = 1.4
  5. EV/EBITDA 12 Mo = 9.51

Company: Blackrock Kelso (BKCC)

Levered free cash flow = $ 47 million

Basic Key ratios

  1. Percentage Held by Insiders = 2.13
  2. Number of Institutional Sellers 12 Weeks = 3

Growth

  1. Net Income ($mil) 12/2011 = 77
  2. Net Income ($mil) 12/2010 = 72
  3. Net Income ($mil) 12/2009 = 67
  4. 12months Net Income this Quarterly/12 months Net Income 4Q's ago = 25.54
  5. Quarterly Net Income this Quarterly/same Quarter year ago = 199.49
  1. EBITDA ($mil) 12/2011 = 85
  2. EBITDA ($mil) 12/2010 = 70
  3. EBITDA ($mil) 12/2009 = 69
  4. Net Income Reported Quarterlytr ($mil) = 7
  5. Annual Net Income this Yr/ Net Income last Yr = 7.52
  6. Cash Flow ($/share) 12/2011 = 0.88
  7. Cash Flow ($/share) 12/2010 = 0.8
  8. Cash Flow ($/share) 12/2009 = 1.26
  1. Sales ($mil) 12/2011 = 132
  2. Sales ($mil) 12/2010 = 106
  3. Sales ($mil) 12/2009 = 125
  1. Annual EPS before NRI 12/2007 = 1.66
  2. Annual EPS before NRI 12/2008 = 1.76
  3. Annual EPS before NRI 12/2009 = 1.36
  4. Annual EPS before NRI 12/2010 = 0.96
  5. Annual EPS before NRI 12/2011 = 1

Dividend history

  1. Dividend Yield = 10.9
  2. Dividend Yield 5 Year Average 12/2011 = 12.5
  3. Dividend Yield 5 Year Average 09/2011 = 12.5
  4. Annual Dividend 12/2011 = 1.1
  5. Annual Dividend 12/2010 = 1.28
  6. Forward Yield = 10.9
  7. Dividend 5 year Growth 12/2011 = -8.96

Dividend sustainability

  1. Payout Ratio 06/2011 = 1.05
  2. Payout Ratio 5 Year Average 12/2011 = 0.96
  3. Payout Ratio 5 Year Average 09/2011 = 0.96
  4. Payout Ratio 5 Year Average 06/2011 = 0.96
  5. Change in Payout Ratio = 0.09

Performance

  1. Percentage Change Price 52 Weeks Relative to S&P 500 = -9.22
  2. EPS Growth Quarterly(1)/Q(-3) = 125
  3. ROE 5 Year Average 12/2011 = 12.55
  4. ROE 5 Year Average 09/2011 = 12.55
  5. ROE 5 Year Average 06/2011 = 12.55
  6. Return on Investment 06/2011 = 7.22
  7. Debt/Total Cap 5 Year Average 12/2011 = 24.48
  8. Debt/Total Cap 5 Year Average 09/2011 = 24.48
  9. Debt/Total Cap 5 Year Average 06/2011 = 23.26
  1. Current Ratio 06/2011 = 0.91
  2. Current Ratio 5 Year Average = 1.46
  3. Quick Ratio = 0.91
  4. Cash Ratio = 0.31
  5. Interest Coverage Quarterly = 2.51

Valuation

  1. Book Value Quarterly = 9.6
  2. Price/ Book = 0.99
  3. Price/ Cash Flow = 10.8
  4. Price/ Sales = 5.33
  5. EV/EBITDA 12 Mo = 12.18

Notes

It would fall under the category of "good." Please make sure you read the section that explain the more important ratios as it will help you understand how we arrive at these ratings.

Company: Fifth Street Finance Corp (FSC)

Free cash flow = $- 594 million

Basic Key ratios

Percentage Held by Insiders = 2.84

Growth

  1. Net Income ($mil) 12/2011 = 30
  2. Net Income ($mil) 12/2010 = 22
  3. Net Income ($mil) 12/2009 = 6
  4. 12months Net Income this Quarterly/12 months Net Income 4Q's ago = -48.3
  5. Quarterly Net Income this Quarterly/same Quarter year ago = -41.63
  1. EBITDA ($mil) 12/2011 = 48
  2. EBITDA ($mil) 12/2010 = 25
  3. EBITDA ($mil) 12/2009 = 7
  4. Net Income Reported Quarterlytr ($mil) = 10
  5. Annual Net Income this Yr/ Net Income last Yr = 34.76
  6. Cash Flow ($/share) 12/2011 = 0.97
  7. Cash Flow ($/share) 12/2010 = 0.8
  8. Cash Flow ($/share) 12/2009 = 0.17
  1. Sales ($mil) 12/2011 = 125
  2. Sales ($mil) 12/2010 = 71
  3. Sales ($mil) 12/2009 = 50
  1. Annual EPS before NRI 12/2008 = 0.21
  2. Annual EPS before NRI 12/2009 = 0.25
  3. Annual EPS before NRI 12/2010 = 0.95
  4. Annual EPS before NRI 12/2011 = 1.01

Dividend history

  1. Dividend Yield = 12.01
  2. Dividend Yield 5 Year Average 12/2011 = 10.55
  3. Dividend Yield 5 Year Average 09/2011 = 10.55
  4. Annual Dividend 12/2011 = 1.28
  5. Annual Dividend 12/2010 = 0.99
  6. Forward Yield = 12.02
  7. Dividend 5 year Growth 12/2011 = 16.83

Dividend sustainability

  1. Payout Ratio 06/2011 = 1.27
  2. Payout Ratio 5 Year Average 12/2011 = 1.15
  3. Payout Ratio 5 Year Average 09/2011 = 1.15
  4. Payout Ratio 5 Year Average 06/2011 = 1.15
  5. Change in Payout Ratio = 0.12

Performance

  1. Percentage Change Price 52 Weeks Relative to S&P 500 = -29.62
  1. EPS Growth Quarterly(1)/Q(-3) = -108
  2. ROE 5 Year Average 12/2011 = 10.15
  3. ROE 5 Year Average 09/2011 = 10.15
  4. ROE 5 Year Average 06/2011 = 10.15
  5. Return on Investment 06/2011 = 7.45
  6. Debt/Total Cap 5 Year Average 12/2011 = 9.94
  7. Debt/Total Cap 5 Year Average 09/2011 = 9.94
  8. Debt/Total Cap 5 Year Average 06/2011 = 9.94
  1. Current Ratio 06/2011 = 0.37
  2. Current Ratio 5 Year Average = 3.63
  3. Quick Ratio = 0.38
  4. Cash Ratio = 0.35
  5. Interest Coverage Quarterly = 2.78

Valuation

  1. Book Value Quarterly = 9.89
  2. Price/ Book = 0.97
  3. Price/ Cash Flow = 9.91
  4. Price/ Sales = 5.66
  5. EV/EBITDA 12 Mo = 20.65

Notes

It would fall under the category of "good." Net income, cash flow per share, EBITDA, Annual EPS before NRI and sales have all been rising for the past three years.

Company: Pitney Bowes In (PBI)

Levered free cash flow = $692 million

Basic Key ratios

Percentage Held by Insiders = 0.26

Growth

  1. Net Income ($mil) 12/2011 = 617
  2. Net Income ($mil) 12/2010 = 292
  3. Net Income ($mil) 12/2009 = 423
  4. 12months Net Income this Quarterly/12 months Net Income 4Q's ago = 114.33
  5. Quarterly Net Income this Quarterly/same Quarter year ago = 315.82
  1. EBITDA ($mil) 12/2011 = 817
  2. EBITDA ($mil) 12/2010 = 838
  3. EBITDA ($mil) 12/2009 = 1032
  4. Net Income Reported Quarterlytr ($mil) = 262
  5. Annual Net Income this Yr/ Net Income last Yr = 111.2
  6. Cash Flow ($/share) 12/2011 = 4.31
  7. Cash Flow ($/share) 12/2010 = 3.76
  8. Cash Flow ($/share) 12/2009 = 3.92
  1. Sales ($mil) 12/2011 = 5278
  2. Sales ($mil) 12/2010 = 5425
  3. Sales ($mil) 12/2009 = 5569
  1. Annual EPS before NRI 12/2007 = 2.71
  2. Annual EPS before NRI 12/2008 = 2.78
  3. Annual EPS before NRI 12/2009 = 2.28
  4. Annual EPS before NRI 12/2010 = 2.23
  5. Annual EPS before NRI 12/2011 = 2.26

Dividend history

  1. Dividend Yield = 8.72
  2. Dividend Yield 5 Year Average 12/2011 = 5.67
  3. Dividend Yield 5 Year Average 09/2011 = 5.67
  4. Annual Dividend 12/2011 = 1.48
  5. Annual Dividend 12/2010 = 1.46
  6. Forward Yield = 8.72
  7. Dividend 5 year Growth 12/2011 = 2.5

Dividend sustainability

  1. Payout Ratio 06/2011 = 0.63
  2. Payout Ratio 5 Year Average 12/2011 = 0.58
  3. Payout Ratio 5 Year Average 09/2011 = 0.58
  4. Payout Ratio 5 Year Average 06/2011 = 0.57
  5. Change in Payout Ratio = 0.05

Performance

  1. Percentage Change Price 52 Weeks Relative to S&P 500 = -34.51
  2. EPS Growth Quarterly(1)/Q(-3) = -115.09
  3. ROE 5 Year Average 06/2011 = 674.81
  4. Return on Investment 06/2011 = 11.1
  1. Current Ratio 06/2011 = 1.05
  2. Current Ratio 5 Year Average = 1.09
  3. Quick Ratio = 1
  4. Cash Ratio = 0.36
  5. Interest Coverage =4.6

Valuation

  1. Book Value Quarterly = -0.2
  2. Price/ Cash Flow = 3.99
  3. Price/ Sales = 0.65
  4. EV/EBITDA 12 Mo = 7.67

Notes

It would fall under the category of "average-good."

Company: Teekay Tankers (TNK)

Levered free cash flow = $ 43.7 million

Growth

  1. Net Income ($mil) 12/2011 = -9
  2. Net Income ($mil) 12/2010 = 16
  3. Net Income ($mil) 12/2009 = 42
  4. 12months Net Income this Quarterly/12 months Net Income 4Q's ago = -158.71
  5. Quarterly Net Income this Quarterly/same Quarter year ago = -105.47
  1. EBITDA ($mil) 12/2011 = N/A
  2. EBITDA ($mil) 12/2010 = 69
  3. EBITDA ($mil) 12/2009 = 99
  4. Net Income Reported Quarterlytr ($mil) = 0
  5. Annual Net Income this Yr/ Net Income last Yr = -155.58
  6. Cash Flow ($/share) 12/2011 = 1.08
  7. Cash Flow ($/share) 12/2010 = 1.74
  8. Cash Flow ($/share) 12/2009 = 3.74
  1. Sales ($mil) 12/2011 = 121
  2. Sales ($mil) 12/2010 = 139
  3. Sales ($mil) 12/2009 = 113
  1. Annual EPS before NRI 12/2007 = 2.76
  2. Annual EPS before NRI 12/2008 = 2.6
  3. Annual EPS before NRI 12/2009 = 0.97
  4. Annual EPS before NRI 12/2010 = 0.53
  5. Annual EPS before NRI 12/2011 = 0.17

Dividend history

  1. Dividend Yield = 7.53
  2. Dividend Yield 5 Year Average 12/2011 = 14.53
  3. Dividend Yield 5 Year Average 09/2011 = 14.53
  4. Annual Dividend 12/2011 = 0.83
  5. Annual Dividend 12/2010 = 1.28
  6. Forward Yield = 7.53
  7. Dividend 5 year Growth 12/2011 = -27.81

Dividend sustainability

  1. Payout Ratio 06/2011 = 3.53
  2. Payout Ratio 5 Year Average 12/2011 = 1.93
  3. Payout Ratio 5 Year Average 09/2011 = 1.93
  4. Payout Ratio 5 Year Average 06/2011 = 1.93
  5. Change in Payout Ratio = 1.6

Performance

  1. Percentage Change Price 52 Weeks Relative to S&P 500 = -46.3
  2. Next 3-5 Year Estimate EPS Growth rate = 3
  3. EPS Growth Quarterly(1)/Q(-3) = -121
  4. ROE 5 Year Average 12/2011 = 16.99
  5. ROE 5 Year Average 09/2011 = 16.99
  6. ROE 5 Year Average 06/2011 = 16.99
  7. Return on Investment 06/2011 = 1.17
  8. Debt/Total Cap 5 Year Average 12/2011 = 54.55
  9. Debt/Total Cap 5 Year Average 09/2011 = 54.55
  10. Debt/Total Cap 5 Year Average 06/2011 = 54.55
  1. Current Ratio 06/2011 = 1.67
  2. Current Ratio 5 Year Average = 2.32
  3. Quick Ratio = 1.67
  4. Cash Ratio = 1.59
  5. Interest Coverage Quarterly = 0.63

Valuation

  1. Book Value Quarterly = 9.91
  2. Price/ Book = 0.59
  3. Price/ Cash Flow = 5.42
  4. Price/ Sales = 3.11

Notes

This is a speculative play. The worst news appears to be priced in. As long as it does not trade below 3.50 the outlook will remain neutral. It is currently attempting to put in a bottom. A weekly close above 6.50 on strong volume will turn the outlook bullish.

Conclusion

Even though the markets have pulled back a little bit, they are still extremely overbought and need to let out some steam Prudent investors would do well to wait for a strong pullback before committing funds to this market. A pullback in the 7-12% ranges would qualify as a strong pullback.

Disclaimer

This list of stocks is meant to serve as a starting point. Please do not treat this as a buying list. It is imperative that you do your due diligence and then determine if any of the above plays meet with your risk tolerance levels. The Latin maxim caveat emptor applies-let the buyer beware.

Source: Dividend Plays: Kimberly-Clark Our Top Pick

Additional disclosure: EPS, and EPS surprise charts obtained from zacks.com. A major portion of the historical data used in this article was obtained from zacks.com. Free cash flow yield, income from cont operations, and revenue growth sourced from Ycharts.com. Earnings and growth rate charts sourced from Dailyfinance.com.