Kimberly-Clark (KMB -0.98%) offers a generous dividend yield of 3.6%, more than twice what an exchange-traded fund (ETF) based on the S&P 500 index would offer investors today. That yield is also at the high end of the company's historical yield range. Is it time to add some of this company's stock to your portfolio?

Boring but necessary

From a business standpoint, the consumer staples giant is not exciting. At its core, Kimberly-Clark takes wood and turns it into paper products or similar items. Some of its best-known brands include Kleenex tissues, Scott toilet paper, Kotex feminine hygiene products, Huggies diapers, and Depend adult incontinence protection. There's probably nothing on that list you would spend much time thinking about -- but depending on your life stage, every item may be vital.

A small child sitting in a pile of several rolls of unraveling toilet paper.

Image source: Getty Images.

Basically, Kimberly-Clark sells things you just buy over and over again without thinking about them. And that has led to a very long period of success for the company, highlighted by an incredible five-decades-long streak of annual dividend increases. This is Dividend King territory, which no company achieves by accident. To be fair, the dividend growth has averaged in the low- to mid-single digits over the past decade, but that's historically been enough to keep up with inflation over longer periods.

The company tends to use more leverage than paper-product rivals like Procter & Gamble (PG -0.95%). For example, Kimberly-Clark's ratio of debt to earnings before interest, taxes, depreciation, and amortization (EBITDA) is nearly 2.9, while P&G's is a much lower 1.6. And Kimberly-Clark covers its trailing-12-month interest expenses by around 9 times, while P&G sits at almost 50 times interest coverage. But given the nature of Kimberly-Clark's products -- necessities bought frequently by lots of people -- it can handle a little extra leverage, and covering interest expenses by 9 times is pretty solid.

Even conservative investors should be comfortable owning Kimberly-Clark, with its lofty 3.6% dividend yield. P&G, while a far more diversified company, has a much lower yield of 2.6%.

KMB Dividend Yield Chart

KMB Dividend Yield data by YCharts.

But is it cheap?

The problem with buying Kimberly-Clark right now is its valuation. The dividend yield, which sits toward the high end of the company's historical yield range, suggests that the stock should be fairly attractive for long-term investors. That's partly driven by the consistent dividend growth over time, and assumes Kimberly-Clark muddles through the current inflationary environment. Given that the last 50 years have included a fair number of headwinds -- such as the Great Recession and a global pandemic, among other troubling periods -- it's reasonable to expect a good outcome this time around.

However, you can't just ignore the wild ride over the past couple of years. That included a huge price spike in the pandemic's early days, when toilet paper became a hot commodity, and the subsequent comedown when supply and demand returned to normal. Interestingly, the stock is now trading below the price it fetched at the start of 2020.

A key reason is that margins are under pressure today, thanks to raging inflation. Trailing-12-month earnings per share and gross profit margin are both well off their early-2020 peaks. That's pushed the price-to-earnings ratio a bit above its trailing-five-year average, suggesting the stock is expensive. And yet, the price-to-sales ratio is a little below its longer-term average.

Assuming Kimberly-Clark can pass rising costs on to customers over time, as it has before, earnings may not be the best valuation gauge. Sales, meanwhile, suggest it's either (roughly) fairly valued or a touch undervalued.

Reliable dividends

When you add it all up, Kimberly-Clark looks like a company facing the types of near-term headwinds that it has deftly managed before. And while value investors may not see it as cheap enough to buy today, long-term dividend investors looking for a reliable income stream will probably find it much more appealing. A fair price for a good company is probably worth paying when it's a boring high-yielder like Kimberly-Clark.