By Deborah O'Malley, M.Sc. and Melvin Pasternak, Ph.D.
In recent years, retirement planning has become a whole lot harder. With interest rates near all-time lows, keeping money in the bank just doesn't add up.
One key alternative is the stock market. Although investing in stocks can at times be tricky, a safe haven is high-quality, defensive, dividend-paying stocks. Within this group are my favorites: the "dividend aristocrats."
Dividend aristocrats are companies listed on the S&P 500 that have increased their dividend every year for at least the past 25 years. These stocks have weathered many storms. They are companies with stable and reliable business models. Most often, they are solid money makers. While creative accounting can mask shortfalls in revenues and sometimes even earnings, it can't hide rising dividends for very long.
Over the next five articles, we will apply both technical and fundamental analysis to describe our top five favorite dividend aristocrats.
Our No. 1 pick is consumer staples giant Kimberly-Clark (NYSE:KMB).
This international health, hygiene and paper company operates in more than 150 countries across the globe. Its most popular brands include Kleenex tissue, Scott toilet paper, Huggies and Pull-Ups diapers, Kotex sanitary products and Depend incontinence products.
Aggressive cost cutting, expansion into emerging markets and the introduction of higher-end, higher-margin products are factors which have been driving the stock higher.
But, what makes the company so attractive, in addition to its capital gains potential, is its healthy dividend and solid projected revenue and profit-growth outlook.
This dividend aristocrat currently offers a healthy 3.8% annual yield ($2.84/$74.11). In contrast, interest rates on 10-Year U.S. Treasury notes are currently around 2.1%, just more than half of the Kimberly-Clark yield.
Kimberly-Clark's dividend has consistently increased for the past 39 years. Best yet, management stated it will likely increase the dividend again in April 2012 -- marking the 40th straight year of dividend increases!
The increase is likely to occur following the release of first-quarter results on April 20. As such, Kimberly Clark's projected forward annual yield should be around 4%.
From a technical perspective, Kimberly Clark's stock is on a strong growth trajectory.
As the above chart shows, shares have been on a major uptrend for the past two years.
In August 2011, an accelerated uptrend line formed as the stock rose from a low of $59.17 to a late 2011 high of $73.49.
The stock then entered a "U" shape basing pattern. Basing patterns are bullish and usually imply that the stock will move higher. When a stock completes a basing pattern or "breaks out," you can use a technical analysis concept called the measuring principle to forecast an immediate price target.
I won't trouble you with the intricacies of this calculation -- there's a detailed explanation of the measuring principle in the financial dictionary on this site -- but the stock should reach at least $77.20, about a 4% return from current levels. When dividends are factored in, the return to shareholders should be about double that. As the company grows earnings over time, the share price should also gradually increase.
MACD, a buy/sell indicator, appears to be giving a fresh buy signal, indicated by the black line crossing above the red. The MACD histogram has just risen into positive territory. Both of these are bullish technical signals.
These bullish technicals are backed by strong a fundamental outlook.
For the first quarter of 2012, analysts project increased demand in emerging markets will cause revenue to notch up 0.3% to $5.04 billion -- from $5.03 in the first quarter of 2011.
For the full 2012 year, the 12 analysts following the company expect heightened demand will cause sales to increase 0.6% to $20.96 billion, up from $20.85 billion a year ago.
With strong sales and higher sales volumes, analysts estimate full-year 2013 revenue will rise a further 2.4% to $21.47 billion.
The earnings picture is similar.
For the first quarter of 2012, analysts expect earnings to rise 7.3% to $1.17 per share, up from $1.09 per share in the first quarter of 2011.
With expansion into international markets, the company projects full-year 2012 earnings will be in the range of $5-$5.15 per share -- a 4% to7% increase from earnings of $4.80 per share in 2011.
As international growth continues, analysts project full-year earnings in 2013 will increase a further 7.8% to $5.50 per share. As earnings grow, the share price should rise along with it providing strong, stable returns over time.
The Investing Answer: As with any investment, there are risks to consider. If inflation heats up and material costs rise, Kimberly-Clark's profit margins could be negatively affected. Furthermore, if international expansion slows, so would overall growth.
However, given that the company makes essential products, many of which cater to an aging population, the company should be able to maintain its large customer base. As well, since the company offers an attractive, stable dividend, shareholders are likely to keep sustained interest in the stock.
Given that the Kimberly-Clark appears technically strong, shows fundamental growth potential and offers a solid dividend, those looking for a stable, high-yielding investment may wish to add the stock to their investment portfolio.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.