Kimberly-Clark (KMB) raises dividend 5%, but sales growth stalls.

Kimberly-Clark’s (NYSE:KMB) dividend was increased by a solid 5%. Its overall yield is now 3.21%. The firm started paying a dividend in 1993.

Kimberly-Clark manufactures and markets personal care and consumer products throughout the world. Major products include diapers, baby wipes, feminine and incontinence care products under the Huggies, Pull-Ups, md GoodNites brands. The firm also has product lines in other consumer areas such as facial and bathroom tissue, paper towels, and napkins. These products are sold under the Kleenex, Scott, Cottonelle, and Viva brand names. Kimberly-Clark falls within the consumer staples category. It was founded in 1872 and is based in Dallas, Texas.

Kimberly-Clark has maintained a solid three-year growth rate of dividends of 4 percent. Kimberly-Clark currently ranks 1st in yield within the large cap consumer goods, personal products category. The quarterly dividend for the April payment will be $0.97 versus the prior year rate of $0.92 per share. Kimberly-Clark Corp. is not a member of our Top 100 Dividend Stock List (see below).

The dividend will be paid at the new higher rate on April 4, 2017, to shareholders of record at close of business on March 10, 2017. Kimberly-Clark is currently priced at $121.79. Listed in the table below are the quarterly dividend payments since 2010.

Date Quarterly Dividend
3/10/2017 0.97
12/7/2016 0.92
9/7/2016 0.92
6/8/2016 0.92
3/2/2016 0.92
12/2/2015 0.88
9/2/2015 0.88
6/3/2015 0.88
3/4/2015 0.88
12/3/2014 0.84
9/3/2014 0.805
6/4/2014 0.805
3/5/2014 0.805
12/4/2013 0.777
9/4/2013 0.777
6/5/2013 0.777
3/6/2013 0.777
12/5/2012 0.709
9/5/2012 0.709
6/6/2012 0.709
3/7/2012 0.709
12/7/2011 0.671
9/7/2011 0.671
6/8/2011 0.671
3/2/2011 0.671
12/8/2010 0.633
9/8/2010 0.633
6/2/2010 0.633
3/3/2010 0.633

Quantitative Analysis:

We examine Kimberly-Clark upon our five key criteria, which include; 

Category Value Score
Dividend Yield 3.21% 123
Dividend Growth (3 to 7 year avg) 5% 307
Forward P/E 18.10  164
S&P Financial Rating A 120
Beta  0.70 50
Total Score   764

Additional quantitative information on P/S ratio and historical yield;

% Yield 3 Year Div. Growth Rate 7 Year Div. Growth Rate SPS 2016 P/S Ratio 10 yr P/S Low 10 yr P/S High 5 yr lowest Yield % 5 yr max Yield %
3.21% 4% 6% 53.85 2.26 1.10 2.50 2.68% 4.09%

Positives;

  • Kimberly-Clark maintains an investment grade credit rating.
  • Kimberly-Clark has maintained a three-year growth rate of dividends of 4 percent.
  • Kimberly-Clark maintains a beta of 0.70, lower than the average company.

Negatives;

  • Kimberly-Clark current dividend yield  is slightly below it’s five year average of 3.33%.

Latest Earnings & Overall Analysis:

Kimberly-Clark issued its earnings data on January 24th. The company reported $1.45 EPS for the quarter, beating the consensus estimate of $1.42 by $0.03.   The maker of Kleenex tissues and Huggies diapers saw revenue flat on a year over year basis at $4.5 billion. Foreign exchange rates were negative and offset a 1% increase in total revenue. The company beat on the bottom line was largely a result of good cost control.

Q4 operating cash flow went up by 30% while free cash flow rose to nearly $700 million. Cost controls along with lower than expected contributions to its pension plan assisted the firm’s cash flow results. The firm continued on its buyback program, buying back nearly 2 million shares in Q4.

In regard to the future outlook for 2017, KMB’s management gave soft guidance. Kimberly-Clark projects revenue for next year to be in line with 2016. Internal growth is expected to be in the 1-2% range. This is far below last year’s expected growth of 4%. Although emerging markets delivered 4% organic sales growth, it cannot make up for developed market business, especially in the U.S.  And, emerging market growth the year before was a stellar 9%.  Thus Kimberly-Clark is losing momentum also in those key markets.

As for earnings per share expectations, the firm offered up $6.20 to $6.35 range. This would represent 4% growth at the midpoint of guidance from the earnings per share of $6.03 for calendar year 2016.  Currency will also have a large impact, as Kimberly-Clark maintains a sizeable portion of revenue from overseas operations. Nearly one-third of revenue comes from emerging markets.

Buybacks will also assist shareholders next year, with nearly $1 billion expected for 2017. The fact is the company is having problems creating growth which reflect lower prices on many of their premier products.  One item of note was on company margins, where gross margins rose by 1% while operating margins grew by 1.9%.   Unfortunately for KMB, the competition is heating up.  Proctor & Gamble’s Pampers is outselling the Huggies brand while growing faster and taking market share.

Based upon a price of $120.59, Kimberly-Clark is trading for 19.2 times estimated earnings for 2017. Additionally, the firm’s price/sales ratio of 2.25 is towards the high end of its historical range. Its yield, now at 3.21% with the dividend increase, is well below the 4% plus yield in 2013. The firm’s payout ratio is 66%.  With its meager sales growth and hefty competition from Proctor & Gamble, we think there are better selections within the sector for dividend investors.

Based on the firm’s lower than average dividend yield, meager sales growth, and elevated P/E ratio, Kimberly-Clark does not qualify as a member of our  Top 100 Dividend Stocks

Please subscribe to our monthly premium newsletter to find out which consumer staples stocks we favor and are listed in our model portfolio.  

Kimberly-Clark Corp. Dividend Yield Chart (Click to enlarge)

kmb2

Chart Explanation:  Dividend growth stocks may be viewed favorably when the current yield is above historical readings for the past 5 years.

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