We are already covering our fourth dividend growth stock analysis in the consumer product sector with Kimberly Clark (KMB). If you have been hiding under a rock for the past two weeks, I strongly recommend you check out my previous dividend growth analyses:
The Clorox Company (CLX)
Procter & Gamble (PG)
Kimberly Clark (KMB) Business Description:
Kimberly Clark is another world-class consumer product manufacturer and marketer. It operates in 36 countries and sells its products across 175 countries. KMB is separated into four 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 $22.1 billion in sales for 2011. The biggest part of their market is the U.S. with $10.5 billion. As such, we can consider KMB to be more vulnerable to a weak U.S. economy than Colgate-Palmolive (CL), for example.
It has definitely followed the big trend of presenting consumer products as a socially responsible corporate citizen. In its social report, KMB reported a significant increase in donations and community investments over the years (from $17.9 million in 2007 to $32.1 million in 2011). It also focuses on having its employees contribute through their “small steps towards sustainability” programs launched in 2010.
KMB Stock Graph
KMB Dividend Growth Graph
KMB is a model of stable dividend growth. Over the past five years, it has increased its payout by 7% annualized. This means that KMB has the potential to double its dividend every 10 years. But 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:
|Current Dividend Yield||3.44|
|5 year Dividend Growth||7.02|
|1 year Dividend Growth||5.8|
|Sales Growth (1 year)||5.57|
|Sales Growth (5 year)||3.37|
|EPS growth (5 year)||5.7|
|P/E Next Year||15.43|
|Return on Equity||28.5|
|Debt to Capital Ratio||0.18|
Warning! There is one thing I really dislike about KMB, and it’s called a weird earnings per share trend:
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 that the payout ratio will only grow bigger and bigger if this situation is not corrected.
KMB Stock 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 its current weaknesses and has put in place a FORCE plan which should result 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 it requires a lot of trees to operate several of its most popular paper-derived product brands, its has Greenpeace on its back. Plus the cost of commodities could severely hurt their margins.
Final Thoughts on Kimberly Clark
With 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 four 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.