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Dividend Kings In Focus: Kimberly-Clark


Updated on October 31st, 2024 by Felix Martinez

Kimberly-Clark (KMB) has increased its dividend for 52 consecutive years, joining the list of Dividend Kings. The Dividend Kings are a group of just 53 stocks that have increased their dividends for at least 50 years in a row.

We believe the Dividend Kings are among the highest-quality dividend growth stocks to buy and hold for the long term.

With this in mind, we created a full list of all 53 Dividend Kings. You can download the full list, along with important financial metrics such as dividend yields and price-to-earnings ratios, by clicking on the link below:

 

Kimberly-Clark is a global leader in its industry and should continue to grow its dividend each year, even during recessions.

This article will discuss the company’s business overview, growth prospects, competitive advantages, and expected returns.

Business Overview

Kimberly-Clark’s origins date back to 1872. Four young businessmen, John A. Kimberly, Havilah Babcock, Charles B. Clark, and Frank C. Shattuck, raised $30,000 of start-up capital to form Kimberly, Clark, and Co.

Today, Kimberly-Clark is a global consumer products company that operates in 175 countries and sells disposable consumer goods, including paper towels, diapers, and tissues.

It operates segments that each house many popular brands: the Personal Care Segment (Huggies, Pull-Ups, Kotex, Depend, Poise), the Consumer Tissue segment (Kleenex, Scott, Cottonelle, and Viva), and a professional segment. In all, KMB generates ~$21 billion in annual revenue.

Source: Investor Presentation

The company reported a strong third quarter for 2024, with $5.0 billion in net sales, reflecting 1% organic growth due to innovative products and productivity gains. Despite a 4% decrease in overall sales largely due to currency fluctuations and divestitures, the company achieved robust market share and productivity gains, driven by its Powering Care strategy, which focuses on accelerating innovation and simplifying operations. The quarter’s adjusted gross margin rose to 36.7%, supported by effective cost management, and adjusted earnings per share grew by 5% to $1.83, signaling resilience amid challenging economic conditions.

Regionally, Kimberly-Clark saw mixed results. In North America, organic sales dropped 1%, with K-C Professional and Consumer Tissue lines experiencing declines, while Personal Care sales remained steady. Emerging markets experienced notable growth, with an 8% increase in organic sales due to pricing actions in high-inflation economies. In developed markets, however, organic sales fell by 2% as pricing adjustments, primarily in Western Europe, impacted the results. The company’s transformation initiative, which included divesting its PPE business, contributed $565 million to operating profit, helping offset currency-related challenges, particularly in hyperinflationary economies.

Year-to-date, Kimberly-Clark’s sales reached $15.1 billion, down 2% primarily due to currency headwinds and divestitures, while organic sales grew by 4% with price increases and a favorable product mix. Adjusted operating profit rose 12% from the previous year, driven by productivity gains and controlled costs. Diluted earnings per share for the first nine months climbed to $6.21, up from $3.70, highlighting Kimberly-Clark’s successful execution in navigating inflationary pressures and currency impacts while positioning the company for continued growth into 2025.

Growth Prospects

Kimberly-Clark has committed to elevating its core brands as one of the three pillars of growth in the coming years. It will do this by launching different product innovations via extensions of existing lines and entirely new products. It can also leverage its strong brands to increase prices over time.

It will also use its significant marketing investments to target under-penetrated categories, driving market share gains and, ultimately, higher revenue and profit.

Source: Investor Presentation

The next growth pillar is accelerating growth in its developing and emerging (D&E) markets, which comprise a significant portion of the company’s sales. The company will focus on its personal care and professional segments in particular, with its largest opportunities coming from places where it has low category penetration and frequency of usage.

The company’s focus on D&E development in Latin America and China, in particular, with smaller markets, is also seeing a meaningful push. Kimberly-Clark plans to use its significant supply chain and marketing experience to pursue growth in areas where it underperforms today, which should help drive some incremental growth.

Kimberly-Clark also continues to pursue cost savings. Thanks to share repurchases and cost reduction programs, it has grown its earnings-per-share.

Overall, we expect 4.5% annual EPS growth over the next five years.

Competitive Advantages & Recession Performance

Kimberly-Clark’s most important competitive advantages are its brands and global scale. The company enjoys a leadership position across its brand portfolio and, indeed, worldwide.

It retains its competitive advantages through marketing and innovation. Kimberly-Clark spends over $1 billion annually on advertising and research and development, which allows the company to stay ahead of the competition. Given its commitment to its growth pillars, we expect this will only increase over time.

In addition, Kimberly-Clark’s global reach provides the company with the efficiency to keep costs low. The FORCE (Focused On Reducing Costs Everywhere) program exemplifies its ability to manage costs, even as revenue grows, and has seen years of success in reducing operating costs.

Kimberly-Clark remains highly profitable, even during recessions. For example, it performed well through the Great Recession of 2007-2009. Its earnings-per-share through the Great Recession are shown below:

As you can see, while Kimberly-Clark’s earnings declined in 2008 and 2010, it also registered a double-digit growth rate in 2009. The company’s strong performance during the recession is due to its selling products that consumers need regardless of economic conditions.

Consumers will always need personal care products, regardless of the economy’s condition. This gives Kimberly-Clark a certain level of product demand each year, even during recessions.

Valuation & Expected Returns

Based on our adjusted earnings-per-share estimate of $7.30 for the fiscal year 2024, Kimberly-Clark trades for a price-to-earnings ratio of 18.4.

Excluding outlier years, Kimberly-Clark has traded at an average price-to-earnings ratio of about 19.0 over the last decade. However, we will use 18 times earnings as our estimate of the stock’s fair value. The valuation has somewhat moderated, but shares still trade just above our fair value estimate.

If the stock valuation declines to 18.0 over the next five years, it would reduce annual returns by 0.2%. In addition, future returns will be generated from earnings growth and dividends. We expect 4.5% annual EPS growth for Kimberly-Clark. The stock also has a 3.6% dividend yield. We see annual returns of 7.9% over the next five years.

Given the strong yield, 50+ year history of dividend increases, and moderate growth expectations, we rate the stock hold for dividend growth investors. The stock is not a buy now, as total expected returns are below 10%.

Final Thoughts

Kimberly-Clark is a high-quality company with a diverse portfolio of strong brands. It has positive growth prospects moving forward, and it is an extremely reliable dividend stock. Emerging markets, cost reductions, and share repurchases will highlight future earnings growth.

Kimberly-Clark has increased its dividend for 52 years in a row and currently has a dividend yield of 3.6%. Therefore, it meets our definition of a blue-chip stock and should continue to deliver steady dividend increases each year.

If you are interested in finding more high-quality dividend growth stocks suitable for long-term investment, the following Sure Dividend databases will be useful:

The major domestic stock market indices are another solid resource for finding investment ideas. Sure Dividend compiles the following stock market databases and updates them monthly:

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