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Is Kimberly-Clark Stock a Buy?

By Royston Yang - Feb 19, 2021 at 8:15AM

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The consumer goods giant continues to execute on its long-term strategy.

The past year has seen the COVID-19 pandemic wreaking havoc on economies and travel-related sectors. With infection rates still high, many businesses have now expanded their hygiene practices amid a sharp increase in awareness of the importance of cleanliness. Kimberly-Clark (KMB 0.79%) is a direct beneficiary of this trend.

The consumer goods giant has been in business for 149 years and its myriad brands of family, baby, and feminine care brands are sold in over 175 countries. With popular and recognizable brands such as Huggies diapers, Kleenex tissues, and Kotex pads, Kimberly-Clark's products are used in numerous homes, and the company is a household name. The blue-chip company's brands occupy the No. 1 and No. 2 spots in their product categories in 80 countries, a testament to the strength of its brand and product franchise.

Investors may wonder if such large companies with illustrious histories make good investments, as there's a tendency for such businesses to stagnate and become complacent. Would Kimberly-Clark's stock still qualify as a buy today?

Person using right hand to pull out tissue paper from a metal tin.

Image source: Getty images.

Steady, consistent financials

Kimberly-Clark reported stable net sales from 2015 to 2019 in the range of $18 billion to $19 billion. Net income, though, was impacted in 2015 by restructuring charges carried forward from 2014, while 2018's net income was negatively impacted by a charge related to the company's 2018 Restructuring Program.

The restructuring was meant to right-size the organization to cut out unnecessary expenses and put it back on track for further growth. In the company's full-year 2020 earnings, revenue grew 3.7% year over year to $19.1 billion, while net income rose 9% year over year to $2.4 billion. The good news is that the 2018 restructuring should be completed by 2021, so this year is the final year that the company will need to recognize related one-off charges.

The company also introduced its "K-C Strategy 2022" back when it reported its full-year 2018 earnings with medium-term objectives of achieving 1%-3% sales growth and mid-single-digit earnings-per-share growth. The results in 2020 demonstrate that the plan has been effective, though management did warn that 2021 may face some challenges with rising raw material costs and rising COVID-19-related expenses.

A Dividend King in the making

Management has just announced that the company's quarterly dividend will be raised by 6.5% year over year, from $1.07 to $1.14 per share. The increase marks the 49th consecutive year that Kimberly-Clark has raised its dividend, bringing it within a hair's breadth of becoming a Dividend King.

Kimberly-Clark 11-Year Dividends

Data source: Kimberly Clark. Chart by author.

The graph above illustrates the growth in the company's dividend since 2010, with the annualized 2021 dividend standing at $4.56 per share. Its shares provide an above-average dividend yield of close to 3.5%. With the company's track record of both consistent free cash flow generation and raising dividends, the per-share dividend should end up being much higher the longer one holds on to the shares.

Structural tailwinds

The COVID-19 pandemic has led to changes in consumer habits that may stick around over time. Kimberly-Clark's consumer tissue division saw volumes increase by 9% year over year for the fourth quarter as more people worked and studied from home. This elevated demand may be here to stay if businesses implement a hybrid working model that allows more people to rotate between their offices and homes.

The company's personal care segment could also enjoy a boost as overall improved hygiene standards trigger awareness of the importance of disinfecting and cleaning. Cruise ships and airlines are preparing to implement more stringent measures to offer customers peace of mind, resulting in overall higher demand for Kimberly-Clark's hygiene-related products.

Investors should view Kimberly-Clark as a blue-chip company with a strong, enduring franchise that pays steady dividends. Its track record of raising dividends for nearly 50 years is a testament to the company's consistency in rewarding shareholders over the long term, while its stable of brands and products hold pole positions in numerous countries.

With a growth angle now factored in due to the pandemic, Kimberly-Clark may offer that sweet combination of multiyear earnings and dividend growth.

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Stocks Mentioned

Kimberly-Clark Corporation Stock Quote
Kimberly-Clark Corporation
KMB
$132.41 (0.79%) $1.04

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