Is It Time to Buy Kimberly-Clark Stock?

As markets seem to hit new all-time highs every week, it's not a bad time to consider getting defensive. Investing in a defensive sector such as consumer staples, which has lower volatility and more reliable profits than some of the market's more speculative sectors, could be a good choice right now.

To that end, few companies are more stable than Kimberly-Clark  (NYSE: KMB  ) , the maker of such everyday products as Kleenex tissues and Huggies diapers. Let's take a look at why now could be a good time to buy Kimberly-Clark stock.

Strong cash generator
Kimberly-Clark's products can be found in millions of homes across the world. Its strong brands produce a lot of free cash flow, which is a great sign for investors.

Over the first half of the year, Kimberly-Clark generated $840 million in free cash flow. That was up 22% from the same period the year before, thanks to higher operating cash flow and lower capital expenditures.

Kimberly-Clark uses a lot of this cash flow to reward its investors. Through the first six months of 2014, the company spent $917 million on buying back its own stock and paid $627 million in dividends. The stock currently has a dividend yield of just over 3%.

Kimberly-Clark's strong free cash flow generation enables the company the ability to increase that dividend over time. For instance, Kimberly-Clark distributed just 74% of its free cash flow as dividends over the first half of 2014.

Consistent dividend growth
At its recent stock price, Kimberly-Clark's dividend yields 3.2%, which is an attractive payout for investors who enjoy receiving regular income from their investments. 

The relative stability of the business means Kimberly-Clark can pass along regular dividend increases to shareholders. In February, Kimberly-Clark increased its quarterly dividend by 3.7%. This marked the 42nd consecutive year with a dividend increase. Going back further, the company has paid a dividend for 80 years in a row.

Over the past five years, Kimberly-Clark has increased its dividend at a compound annual growth rate of approximately 7%. Clearly management is committed to raising the payout, and this should continue for the foreseeable future given the company's comfortable free cash flow.

International growth
Another reason to consider buying Kimberly-Clark now is its future growth catalyst in the form of international expansion. Mature markets such as the United States are very stable, which provides solid free cash flow. But there isn't much room for growth in highly developed nations. Emerging economies, however, present a clear road map for the future.

This is already starting to work in the company's favor. Kimberly-Clark's international sales increased 10% last quarter compared to the year-ago quarter, which was double the organic growth rate of the overall company. Specifically, management stated that volumes increased in Brazil, China, Russia, South Africa, South Korea, and Venezuela, and the company was able to pass along pricing increases in these markets as well.

Why now may be a good time to buy
As the markets roar to new heights, defensive companies like those in the consumer staples sector may be a wise choice. One of them, Kimberly-Clark, holds a portfolio of popular brands that generate strong free cash flow.

In turn, Kimberly-Clark rewards its shareholders with millions of dollars of share buybacks and dividend payments every year. And, because the company generates more free cash flow than it pays out, there is room for future dividend increases. This will be achieved through continued success in North America, as well as new avenues for growth in international markets.

Lastly, the stock isn't too aggressively valued. Shares of Kimberly-Clark trade for 16 times forward earnings estimates, which is a slight discount to the valuation of the broader stock market.

Put it all together, and now could be a good buying opportunity for Kimberly-Clark.

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