Dividend Aristocrats

Kimberly Clark Stock, a 47 Year Dividend Aristocrat

Kimberly Clark Stock is a member of the prestigious S&P 500 Dividend Aristocrats index. These are 64 coveted stocks that have not only paid dividends for at least 25 consecutive years but have also grown them each year.

To be included in this index, stocks must be indexed in the S&P 500 and have a minimum $3 billion market capitalization. Kimberly Clark has grown its dividends for 47 consecutive years, just 3 years away from achieving the Dividend King status.

Management last raised dividends from $1.03 per share in November 2019 to $1.07 per share in January 2020. The company has grown its dividend at a compounded annual growth rate (CAGR) of 4% over the last 5 years.

In this article, we will discuss Kimberly Clark’s business operations and strategy, explore latest earnings results, dividend growth history, stock’s valuation and performance versus the S&P 500 and the S&P 500 Consumer Staples (XLP) index.

Table of Contents

This article is broken down in to sections, feel free to jump to the area that interests you.

Business Synopsis

Kimberly Clark is a global consumer company that manufactures essential products used for living a quality and better life including diapers, baby wipes, paper towels, facial tissues, feminine and incontinence care among others. The company reports financial results in 3 operating segments. They are:

  1. Personal Care
  2. Consumer Tissue
  3. K-C Professional

Founded in 1872, the company has strong global brands including 5 billion dollar brands including Huggies, Kleenex, Kotex, Cottonelle and Scott. Kimberly Clark has such a strong global reach that its products are consumed by one quarter of the world’s entire population and sold in 175 countries.

The screenshot below shows the company’s 3 global segments including Personal Care, Consumer Tissue and K-C Professional. In 2019, Kimberly Clark generated $18.45 billion in revenues. Personal Care is the top segment generating 49% of all sales at $9.1 billion. The next largest segment is Consumer Tissue generating 33% of all sales or $6 billion. The 3rd segment K-C Professional generates 18% of all revenues or $3.3 billion.

Source: Kimberly Clark Investor Presentation 2019

Management has introduced a K-C Strategy Growth plan looking ahead to the company’s 150 year anniversary in 2022. This plan includes growing sales organically between 1% to 3% annually, increasing earnings per share in mid single digits through restructuring efforts and share buybacks, and main top tier Return on Invested Capital. Fourth, the company plans to increase its dividend in line with growth in earnings per share.

Source: 2020 Kimberly Clark Factsheet

Revenue Analysis and Share Repurchases

For full year 2019, Kimberly Clark reported $18.45 billion in revenues and earned a net income of $2.157 billion, implying a net profit margin of almost 12%. Revenues declined by less than 1% from 2018’s reported sales of $18.486 billion. While sales grew 2% in North America, they declined by 3% outside of North America which contributed to the overall revenue decline.

On a more positive note, organic sales grew by 4% year over year due to higher net pricing of 4%, negative 3% due to currency fluctuations and -1% due to lower volume. Sales of personal products were up 4% in North America due to a mix of higher volumes, prices and product mix. Consumer tissue segment grew revenues by 7% due to higher pricing and lower volume. The company improved adjusted gross margin from 33.2% in 2018 to 35% in 2019.

This increase in adjusted gross margin was made possible by total cost savings + restructuring of $425 million in 2019. At the beginning of 2019, management gave earnings per share guidance of $6.50 to $6.70 per share. Adjusted EPS for the year actually came in at $6.89 per share with the company managing to beat its own guidance.

Over the last decade, Kimberly Clark has grown revenues from $ in 2020 to $18.45 billion in 2019. This represents a compounded annual growth rate (CAGR) of

Trading on the New York Stock Exchange, Kimberly Clark has a $47.4 billion market capitalization and pays a juicy 3% dividend yield. This yield is 100 basis points higher than the yield on the S&P 500 which stands at 2%.

Management has rewarded shareholders with a cumulative share repurchase program of $10.6 billion over a period of 10 years with total share count reducing by 18% from 2010 to 2019. This information is presented in the screenshot below.

The company is targeting share repurchases between $700 to $900 million in 2020. This is the reason KMB stock trades at a slightly higher valuation of 18.5 times forward earnings versus it’s peer group at 18.

Growth Outlook

In 1st Quarter, 2020 earnings released on April 22nd, 2020 Kimberly Clark reported revenues of $5 billion and net income of $675 million, implying a net profit margin of 13.5%. Revenue increased 8% year over year from 2018’s reported sales of $4.6 billion. Management attributes this growth due to significant shipments to support consumer stock-up due to Covid-19 Virus. Volumes increased 8%, prices rose 1% and product mix improved by 1%.

Adjusted gross margin fared better at 37.2% in 1st Quarter, 2020 versus 33.5% in the same quarter 1 year prior. This growth of 370 basis points in adjusted gross margin was achieved mainly due to cost savings of $125 million thanks to restructuring and FORCE program (Focus on Reducing Costs Everywhere). Earnings per share grew 28% year over year from 2019’s 1st quarter EPS of $1.66 per share to 1st quarter 2020 EPS of $2.13 per share.

Dividend Growth History

Kimberly Clark is a holding in the prestigious S&P 500 Dividend Aristocrats group having raised dividends for 47 consecutive years. The company is just 3 years shy of achieving the Dividend King Status, a coveted spot of stocks that have raised dividends for a minimum 50 consecutive years.

Kimberly Clark has grown dividends from a modest 27 cents a share in 1985 to $4.12 per share in 2019, representing a compounded annual growth rate (CAGR) of 8% over 35 years.

Attached chart shows a steady uptrend in the company’s dividend growth history. After 2003, the uptrend started taking off and became very steep.

Attached chart shows the year over year percentage growth in Kimberly Clark’s dividend payments. For most years, the company has grown dividends between mid to high single digits. However, during the housing boom years from 2003 to 2006, the company grew dividend at low double digits.

Measuring the Dividend Payout Ratio

Lets calculate the dividend payout ratio for Kimberly Clark. Dividend Payout Ratio measures how much of a company’s free cash flow is paid out in the form of dividends.

Free cash flow is the cash a company generates from daily operating activities minus capital expenditures like investing in new plants or equipment.

Free cash flow is calculated from the statement of cash flows, and is not artificially modified using accounting rules or non-cash expenses like depreciation, amortization, fair value revaluations, etc.

In 2019, Kimberly Clark generated $2.7 billion in cash from operations and spent $1.2 billion in capital expenditures. What is the free cash flow?

Free Cash Flow = Cash from Operations – Capital Expenditures

Free Cash Flow = $2.7 billion – $1.2 billion

FCF = $1.5 billion

For fiscal 2019, Kimberly Clark paid out $1.4 billion in dividends. So what is the dividend payout ratio?

Dividend Payout Ratio = Total Dividends Paid / Free Cash Flow

Dividend Payout Ratio = $1.4 billion / $1.5 billion

DPR = 93%

A 93% dividend payout ratio is quite high, however we consider Kimberly Clark’s dividend safe due to its 47 year dividend payment history and 8% annualized growth over the last 5 years. In order to facilitate its dividend as a priority, the company might have to cut capital expenditures or share repurchases or both. However due to low interest rates, management has the flexibility to borrow and spend on capital expenditures while trying to grow revenues.

Long Term Stock Performance

KMB Stock has risen from a modest $16 in January 1990 to $139 as of June 2020. This represents a compounded annual growth rate of 7.5% over a period of 30 years. It is interesting to note that the stock price gains have been equal to the long term dividend growth rate of 8% as discussed above in the Dividend Growth History section.

Being a Consumer Staples company, Kimberly Clark should out perform during economic downturns. During the great financial crisis of 2008, the KMB stock dropped from highs of $70 in June 2007 to $41 as of March 2009.

This represented a drop of 41% from peak to trough. Yes, this performance was significantly better than the S&P 500 which dropped a cumulative 56%.

Stock Valuation

Bloomberg Analysts’ Consensus estimates expect Kimberly Clark to earn $7.48 in earnings per share for 2020. Using the current stock price of $139 and dividing in to the expected earnings, we arrive at a forward price to earnings ratio of 18.5. As a comparison, the S&P 500 currently trades at a forward PE of 22 times earnings.

KMB Stock is a member of the S&P 500 Consumer Staples index. This index trades at a forward price to earnings ratio of 18 times 2020 earnings. This means Kimberly Clark’s stock valuation is close to its industry peers albeight slightly higher.

Executive Summary

Here is what we like and don’t like about Kimberly Clark Stock.

Likes

  • 47 years of growing dividends making this a dividend aristocrat stock and just 3 years away from becoming a Dividend King.
  • $700 to $900 million in planned share repurchases for 2020 thus rewarding shareholders with a higher earnings per share number that helps increase stock price.
  • 5 year average dividend growth rate of 4%. This number is low but we like this rate of growth which is conservative and in line with growth in earnings.
  • Kimberly Clark invented 5 out of the 8 largest product categories it dominates plus the company owns 5 billion dollar brands. This is a company keen on innovating product categories and achieving profitable growth.

Dislikes

  • Forward Price to Earnings Ratio of 18.5 times earnings which makes this stock more expensive than its peers.
  • High debt load of $7.7 billion leaving the company highly exposed to interest rate changes and currency fluctuations.
 

Market Capitalization

$47.4 Billion
Dividend Yield 3%
Forward PE Ratio 18.5 times 2020 earnings
Dividend Growth (5 Year Avg.) 4%
Dividend Payout Ratio 93%
EPS Growth (5 Year Avg.) 9.8%
2019 Revenues $18.45 Billion
Gross Margin 36%
Net Margin 12%

KMB Stock Dividend Dates

Visit the company’s Investor Relations | Dividend History website to see a history of dividend payments, ex dividend dates and payable dates.

Declared Ex-Date Record Payable Amount Type
1.07 U.S. Currency
1.07 U.S. Currency
Total dividends in 2020: 2.14
1.03 U.S. Currency
1.03 U.S. Currency
1.03 U.S. Currency
1.03 U.S. Currency
Total dividends in 2019: 4.12
1.00 U.S. Currency
1.00 U.S. Currency
1.00 U.S. Currency
1.00 U.S. Currency
Total dividends in 2018: 4.00
0.97 U.S. Currency
0.97 U.S. Currency
0.97 U.S. Currency
0.97 U.S. Currency
Total dividends in 2017: 3.88

Kimberly Clark Stock Price

To view the latest quote on KMB Stock Price, visit the company’s Investor Relations website and select “Stock Information.”

 

What's your reaction?

Excited
0
Happy
0
In Love
0
Not Sure
0
Silly
0

You may also like

Comments are closed.