Kimberly-Clark (KMB, Financial) is a well-known multinational personal care goods manufacturer. The company owns global brands such as Huggies, Kleenex, Kimwipes and many more. With nearly half of its revenues coming from outside the U.S., Kimberly-Clark’s revenues declined in the last three years due to the strengthening dollar, which has made the stock price move sideways, even as dividend yield kept increasing. The stock now yields nearly 3.3%, but how safe is Kimberly-Clark’s dividend over the short to medium term?
Though revenue growth has been edging lower and lower for the last three years, Kimberly-Clark's operating profits have gone in the opposite direction. Kimberly-Clark’s revenue declined by more than $1 billion in five years, from $19.46 billion in 2012 to $18.20 billion in 2016. But operating profits have climbed by nearly $1 billion, from $2.377 billion to $3.317 billion, during the period. Aggressive cost-cutting and the ability to pass on price increases in a tight market has helped the company improve its margins. Additionally, it shows the strength of the company’s brands in the global market.
Kimberly-Clark has been very steady in its approach to improving shareholder returns. The company bought back $3.539 billion worth of shares during the 2014-2016 period while paying cash dividends of $3.839 billion. The company has paid dividends for the last 84 years and increased them for the last 45 years. Not many companies can boast of such records, and this shows that the portfolio of products under Kimberly-Clark can stay relevant over many decades.
Though it may not be recession-proof, Kimberly-Clark has products that people will buy even during a recession. People may stop going to fancy restaurants when they are worried about their savings, but they are not going to stop buying for their aged parents and little children.
Kimberly-Clark’s revenues actually increased during the greatest recession of our times, and the company was even able to hold on to its margins. Very few companies were able to increase their revenues during the 2009 recession, and Kimberly-Clark was one of them.
Kimberly-Clark has increased dividends for 45 years, and its ability to increase dividends in the short to medium term looks very promising. Kimberly-Clark has not taken advantage of the low interest rate environment and raked up its debt position. Long-term debt has only increased by $1.4 billion in the last five years. The company ended the second quarter with $6.7 billion in long-term debt against a cash position of $1.05 billion while net interest expense stood at $83 million during the quarter.
KMB data by GuruFocus.com
With a payout ratio of around 60%, Kimberly-Clark will be able to keep increasing its dividends over the next five years. The stock price has gone down by 1% in the last year as revenue growth still remains elusive for the company. But as a global brand, the company has a lot of room for its products to grow in emerging markets over the long term, and there is enough margin of error for long-term investors.
Disclosure: I have no positions in the stock mentioned above and no intention to initiate a position in the next 72 hours.
