Everyone would love to find the perfect stock. But will you ever really find a stock that gives you everything you could possibly want?

One thing's for sure: If you don't look, you'll never find truly great investments. So let's first take a look at what you'd want to see from a perfect stock, and then decide if Kimberly-Clark (NYSE: KMB) fits the bill.

The quest for perfection
When you're looking for great stocks, you have to do your due diligence. It's not enough to rely on a single measure, because a stock that looks great based on one factor may turn out to be horrible in other ways. The best stocks, however, excel in many different areas, which all come together to make up a very attractive picture.

Some of the most basic yet important things to look for in a stock are:

  • Growth. Expanding businesses show healthy revenue growth. While past growth is no guarantee that revenue will keep rising, it's certainly a better sign than a stagnant top line.
  • Margins. Higher sales don't mean anything if a company can't turn them into profits. Strong margins ensure a company is able to turn revenue into profit.
  • Balance sheet. Debt-laden companies have banks and bondholders competing with shareholders for management's attention. Companies with strong balance sheets don't have to worry about the distraction of debt.
  • Money-making opportunities. Companies need to be able to turn their resources into profitable business opportunities. Return on equity helps measure how well a company is finding those opportunities.
  • Valuation. You can't afford to pay too much for even the best companies. Earnings multiples are simple, but using normalized figures gives you a sense of how valuation fits into a longer-term context.
  • Dividends. Investors are demanding tangible proof of profits, and there's nothing more tangible than getting a check every three months. Companies with solid dividends and strong commitments to increasing payouts treat shareholders well.

With those factors in mind, let's take a closer look at Kimberly-Clark.

Factor What We Want to See Actual Pass or Fail?
Growth 5-year annual revenue growth > 15% 4.4% Fail
  1-year revenue growth > 12% 3.3% Fail
Margins Gross margin > 35% 33.2% Fail
  Net margin > 15% 9.3% Fail
Balance sheet Debt to equity < 50% 105% Fail
  Current ratio > 1.3 1.10 Fail
Opportunities Return on equity > 15% 31.8% Pass
Valuation Normalized P/E < 20 15.34 Pass
Dividends Current yield > 2% 4.1% Pass
  5-year dividend growth > 10% 8.0% Fail
  Total Score   3 out of 10

Source: Capital IQ, a division of Standard and Poor's. Total score = number of passes.

Kimberly-Clark isn't cleaning up with its 3-point score. The maker of household brand-name products not only has a low score but falls short of some of its primary competitors.

Kimberly-Clark is well-known for its product lines, which include brands like Kleenex, Huggies, and Scott tissue paper. Those brands build loyalty, as Kleenex was recently recognized as one of the world's 100 top brands. Loyalty, in turn, helps give Kimberly-Clark some stability even in a bumpy economy.

A stable, mature business also makes it possible for Kimberly-Clark to pay a nice dividend. At current levels, the stock yields more than consumer products rivals Procter & Gamble (NYSE: PG) and Colgate-Palmolive (NYSE: CL), and although Kimberly-Clark's dividend growth doesn't quite reach the 10% level, the company has a 39-year history of raising dividends annually.

But Kimberly-Clark faces some problems. Demand has stayed reasonably strong, but the company's production costs have been on the rise, pressuring margins and overwhelming its initial cost-cutting measures. At current levels, the company's margins trail those of P&G, Colgate, and cleaning-product specialist Clorox (NYSE: CLX) substantially.

To address these concerns, the company recently announced plans to restructure its pulp and tissue businesses. With as many as six plants slated for sale, closure, or streamlining, Kimberly-Clark expects another $75 million in annual savings by 2013.

Expecting Kimberly-Clark to become the perfect stock isn't realistic, given its large size and marginal growth prospects. But as a dependable source of income, the stock may well play a useful role in dividend investors' portfolios.

Keep searching
No stock is a sure thing, but some stocks are a lot closer to perfect than others. By looking for the perfect stock, you'll go a long way toward improving your investing prowess and learning how to separate out the best investments from the rest.

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Fool contributor Dan Caplinger doesn't own shares of the companies mentioned in this article. Kimberly-Clark, Clorox, and Procter & Gamble are Motley Fool Income Investor recommendations. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has a disclosure policy.