Earnings seasons are excellent opportunities to get updates on where companies are and where they could be headed. This earnings season carries extra importance as a lot has changed in the last three months that could throw a wrench into companies' near-term guidance.
Consumer staples giant Kimberly-Clark (KMB 0.70%) just reported weaker-than-expected results and cut its full-year outlook. The company has dozens of everyday-use brands and professional products centered on paper -- from paper towels and toilet paper to diapers and feminine products.
Steady demand for Kimberly-Clark's products, no matter what the economy is doing, has allowed the company to raise its dividend for 53 consecutive years, earning it a coveted spot on the list of Dividend Kings. The stock yields a hefty 3.8% as of this writing -- making it a solid source of passive income.
Here's why Kimberly-Clark is a reliable dividend stock to buy now for risk-averse investors.
Image source: Getty Images.
Pressures are mounting
Tariff talks were far less tense when Kimberly-Clark provided its initial 2025 outlook in late January.
The company originally expected 2025 organic sales growth to outpace the weighted average by 2% in the categories and countries in which it competes. It has since lowered that guidance to a range of 1.5% to 2%. The most significant guidance cut was to adjusted earnings per share (EPS) -- which are expected to be flat to positive on a constant currency basis compared to earlier guidance of mid-to-high single-digit growth.
Kimberly-Clark also expects free cash flow (FCF) of $2 billion, compared to an earlier forecast of more than $2 billion.
A bad pattern
The lackluster growth is nothing new for longtime Kimberly-Clark investors. As you can see in the following chart, Kimberly-Clark's stock price has stagnated over the last decade, operating margins have consistently been in the mid-teens range, and revenue is up only modestly in recent years.
Data by YCharts.
As my colleague Eric Volkman pointed out, companies shouldn't use trade tensions as an excuse for underwhelming results. And Kimberly-Clark has been underperforming its peer group for years now.
Last year, the company launched its multiyear Powering Care strategy, which reorganizes the company into three segments -- North America, international personal care, and international family care. The move aims to streamline operations, enhance flexibility, and simplify reporting structures. However, as Kimberly-Clark's latest guidance suggests, the impact of the Powering Care strategy will take time to show up in its results.
A dirt-cheap, high-yield stock
Kimberly-Clark isn't at the top of its game and hasn't been for several years now. However, the company does have some key factors going for it that could appeal to risk-averse investors.
For starters, its dividend is reliable. Even with reduced FCF guidance of $2 billion, Kimberly-Clark can support its capital return program entirely with cash. In the recent quarter, it returned $466 million to shareholders through buybacks and dividends.
Secondly, Kimberly-Clark has improved its balance sheet by reducing debt. Its total net long-term debt is near its 10-year low at $6.7 billion.
Finally, Kimberly-Clark stock trades with a price-to-earnings (P/E) ratio of just 18.3 compared to a 10-year median P/E of 23.1. With flat to slightly positive adjusted EPS guidance in the current year, Kimberly-Clark is arguably still a bargain at these levels.
A good buy for income investors
Kimberly-Clark may not be growing briskly, but that's not necessarily a bad thing for investors who are mainly focused on supplementing their income. The stock is a good value compared to more expensive industry peers.
For example, Procter & Gamble is another consumer staples Dividend King that is modestly growing but fetches a 26.7 P/E while paying a lower 2.7% yield. P&G is the better business and worth buying for investors who prioritize quality, but Kimberly-Clark is a better value and has higher passive income potential.
The company ripped off the proverbial bandage by cutting its growth projections for this year. With expectations lowered, Kimberly-Clark has more room to surprise to the upside. And in the meantime, the sizable 3.8% yield provides a worthwhile incentive for income investors to hold the stock.
