How Safe Is Kimberly-Clark's Dividend?

Kimberly-Clark (KMB +1.04%) is a consumer products giant, producing well-known brands like Kleenex and Huggies. The reliable nature of demand for Kimberly-Clark's products has made the stock a natural place for investors looking for stable fundamentals in a business, and the company has also done a good job of treating its shareholders well by paying consistent and growing dividends. As safe dividend income gets harder to find, investors want to know whether the challenges that Kimberly-Clark faces pose a threat to its dividend in the long run. Below, you'll learn more about whether Kimberly-Clark's dividend is safe to rely on in future years.

Data source: Yahoo! Finance. Last increase refers to ex-dividend date.

Dividend yield

A dividend yield of 3.2% puts Kimberly-Clark at the upper end of stocks in the S&P 500, which has an overall yield closer to 2% right now. Yet the yield isn't so high that it should cause anyone to be overly concerned about its sustainability. In fact, Kimberly-Clark's yield has actually come down significantly in recent years, having peaked above 5% in the immediate aftermath of the financial crisis. The current yield is actually closer to the stock's long-term historical range and reflects the substantial increase in share price that Kimberly-Clark has sustained in the last five years.

Payout ratio

Kimberly-Clark's payout ratio is sound, with its current reading of between 60% and 65% being fairly normal for a mature slow-growth company. The consumer products company has kept its payout ratio near its current levels for a while, with only a brief decline in earnings a couple years ago causing a brief spike in the metric. Earnings have kept pace with the dividend increases that Kimberly-Clark has given its shareholders, and that's allowed the company to enjoy a stable payout ratio that further supports the sustainability of the dividend.

Image source: Kimberly-Clark.

Dividend growth

Kimberly-Clark has put together a long track record of dividend performance, including 45 consecutive years of annually raising its payout to shareholders. That makes Kimberly-Clark a Dividend Aristocrat and shows its ability to sustain dividend growth even when economic conditions aren't ideal. As you can see below, Kimberly-Clark's dividend growth has accelerated over the past decade, as the company has responded to greater growth opportunities and been more willing to return capital to shareholders through dividend payments.

KMB Dividend data by YCharts.

What's ahead for Kimberly-Clark?

Short-term issues have arisen for Kimberly-Clark lately that have made some investors question its ability to sustain growth. In its most recent quarter, the consumer products specialist saw revenue sink 1%, pulling net income down by 7% from year-earlier levels. The U.S. market was especially weak for Kimberly-Clark, and that's where the company gets the bulk of its business. Organic sales fell, and operating profit suffered from higher materials costs that wiped out efficiency gains from cost-cutting measures. CEO Thomas Falk pointed to competitive pressures that are holding the company back as well, and Kimberly-Clark cut its guidance for the remainder of the year, predicting flat organic growth and earnings gain of less than 4% for 2017 compared to 2016.

Yet Kimberly-Clark is optimistic about its future. The company hopes that growth in the U.S. will reappear later this year and gain momentum into 2018. Meanwhile, Kimberly-Clark is still working to build up its business in key developing markets around the world. China has given the company double-digit-percentage increases in volume, although the pricing environment there has been relatively tough. As Latin America recovers from a recent economic slump, Kimberly-Clark believes that better sales trends there could also lead to a recovery. Commodity prices for raw materials remain a wildcard, but staying lean internally could continue to boost earnings and help Kimberly-Clark pay growing dividends.

What to expect from Kimberly-Clark

Kimberly-Clark has had to deal with tough industry conditions before, and it has been able to sustain and grow its dividend even in the face of major challenges. There's no reason to think that it can't do the same thing this time. The company's dedication to its dividend policy makes its current payout safe even as Kimberly-Clark deals with some threats to its future growth prospects.