Kimberly-Clark: Dividend Stock Analysis

Business Description:

Kimberly Clark (NYSE:KMB) is another world-class consumer product manufacturer and marketer. They operate in 36 countries and sell their products across 175 countries. KMB is separated into 4 divisions:

- Personal Care (Huggies, Pull-ups, Goodnites, Kotex, Depend)

- Consumer Tissue (Kleenex, Cotonelle, Viva, Andrex, Scottex, Hakle, Page)

- Professional (workplace apparel, wipes, soaps, sanitizers, tissues, and towels)

- Health Care (medical devices and infection prevention products)

The Personal and Health Care divisions are the ones with the biggest growth in sales over the past three years.

Kimberly-Clark achieved $22.1Billion in sales for 2011. The biggest part of their market is the USA with $10.5B. As such, we can consider KMB to be more vulnerable to a weak US economy than Colgate-Palmolive for example.

KMB geo diversification

It has definitely been the big trend of presenting consumer products as a socially responsible corporate citizen. In their social report, KMB reported a significant increase in donations and community investments over the years (from $17.9M in 2007 to $32.1M in 2011). They also focus on having their employees contribute through their "small steps towards sustainability" programs launched in 2010.

KMB Stock Graph

KMB stock graph

KMB Dividend Growth Graph

KMB dividend growth graph

As you can see, KMB is a model of stable dividend growth. Over the past 5 years, it has increased its payout by 7% annualized. This means that KMB has the potential to double its dividend every 10 years. However, don't get too excited about this dividend growth perspective, I've found a few challenges for KMB in the future.

The Company Ratios and Financial Info:

Ticker KMB
Name Kimberly-Clark Corp
Dividend Metrics
Current Dividend Yield 3.44
5 year Dividend Growth 7.02
1 year Dividend Growth 5.8
Company Metrics
Sales Growth (1 year) 5.57
Sales Growth (5 year) 3.37
EPS growth (5 year) 5.7
P/E ratio 16.96
P/E Next Year 15.43
Margins growth -0.56
Payout ratio 69.58
Return on Equity 28.5
Debt to Capital Ratio 0.18

Warning! There is one thing I don't really like about KMB and it's called a weird Earnings Per Share Trend:

KMB Earning Per Share

As you can see, Kimberly-Clark was able to recover from 2008 with a great profit in 2009. But since then, the EPS is going down. Combined with the fact that the stock is continuously increasing its dividend payouts, it seems to me that the payout ratio will only grow bigger and bigger if this situation is not corrected.

KMB Stock Technical Analysis

KMB technical analysis

KMB is currently trading on a strong uptrend. It might be a good time to acquire this stock. Click here to get a free stock analysis report on KMB.

Kimberly Clark Upcoming opportunities and dangers:

KMB management is definitely aware of their current weaknesses and have put in place their FORCE plan which should results in $400 to $500 million in cost savings. The results of this plan should start appearing in 2013. This should stop the EPS slide. Note that 2012 projected EPS should be higher than 2011. This is a good sign that KMB is on the right track to keep increasing its dividend.

Their other challenge is more environmental and linked to resources. Since they require a lot of trees to operate several of their most popular paper derived product brands, they have Greenpeace on their back. Plus the cost of commodities could severely hurt their margins.

Final Thoughts on Kimberly Clark

With an EPS going down for the past three years combined with dividend payout growth, it seems that the payout ratio of 70% will continue to grow. I see this as a major downside for any dividend growth investor. Considering that we have 4 other stocks that could easily be part of your portfolio instead of KMB (talking about PG, CL, CLX or JNJ), I think that KMB will not be added to my portfolio in the near term!

Disclaimer: I do not hold KMB in my portfolio right now