Investors love the consumer staples industry because of the steady growth it can deliver to its biggest players. It might not be exciting, but the profit stream from selling essentials like tissues and diapers is durable and has made many millionaires out of long-term holders of companies like Procter & Gamble (NYSE:PG) and Colgate-Palmolive (NYSE:CL).

Kimberly-Clark (NYSE:KMB) stock has trailed the market's returns over the past five years. But investors have pushed its shares higher through the first eight months of 2020, suggesting they see the potential for better operating trends ahead.

Let's take a closer look at how the owner of hit brands like Kleenex and Huggies might provide impressive long-term returns to patient shareholders.

A person grabbing a tissue from a box.

Image source: Getty Images.

Good growth in 2020

Kimberly-Clark's latest operating results put it just above average when it comes to growth and profitability. It expanded organic sales by 4% in the second quarter, compared to the 6% growth that both P&G and Colgate managed during the same period. That's not a big knock on this business, though, which counts corporations as major customers and saw a sharp drop-off in its professional supply segment. Overall, Kimberly-Clark is winning market share across most of its eight core product categories.

Meanwhile, Kimberly-Clark's operating profit margin is improving. The company's adjusted operating margin jumped to 22% last quarter and had been climbing even before the pandemic struck, thanks to aggressive cost cuts. Last quarter, P&G's comparable figure was 21% and Colgate's was 24%.

Bigger wins

Kimberly-Clark stands above its peers in three ways that could make it a better long-term investment. First, it has room to keep improving profitability by cutting costs and pushing deeper into premium niches like with its Huggies diapers. Second, the consumer staples giant is relatively underrepresented outside of the U.S., giving it an attractive growth opportunity to chip away at the market share leads of its peers.

And third, the stock carries an industry-leading dividend yield of 2.8%, compared to 2.3% for P&G and Colgate Palmolive.

Valuation

That elevated yield reflects the fact that investors are willing to pay far less for Kimberly-Clark stock right now. The shares are valued at less than three times annual sales, compared to 4.2 times for Colgate and over five times for P&G.

An investor's best shot at getting great returns from Kimberly-Clark shares would be to hold the stock for long enough to see this valuation gap disappear. That won't happen unless the company can begin to consistently win market share on an annual basis: a target it hasn't achieved in recent years. Kimberly-Clark would also need to maintain operating margins near industry-leading levels (well above 20%).

KMB Operating Margin (TTM) Chart

Kimberly-Clark vs. Colgate Palmolive and Procter & Gamble Operating Margin (TTM), data by YCharts. TTM = trailing 12 months.

To date, there's limited evidence to support the bullish thesis that these changes will happen. That might be enough of a reason to simply keep Kimberly-Clark on your watch list today.

On the other hand, its higher dividend yield, lower valuation, and attractive growth potential all imply decent returns from this stock ahead -- along with a small shot at impressive gains over the long term if its competitive fundamentals improve. If that's an attractive trade-off for you, consider buying shares of this relatively safe stock.