In my quest to find great dividend stocks to own for the long term, I included Kimberly-Clark (NYSE: KMB) among five picks that have better dividends than the S&P 500's average. Four of the five picks I already own, and regarding Kimberly-Clark I said I wasn't sure why I hadn't bought it yet.

With that in mind, I thought I'd drill down a bit further on the stock to get a better idea of what kind of returns can be expected and whether it really is time to quit stalling and buy.

Earnings expectations
As I outlined in a previous article, a good way to get a baseline for growth expectations is to check on what Wall Street analysts expect and how fast the company has actually grown in the past.

  Annual Growth Rate
Analysts' estimates 6.3%
10-year historical 3.0%
5-year historical 8.3%
3-year historical 2.0%
Last 12 months (1.3%)

Source: Capital IQ, a Standard & Poor's company. Historical growth based on earnings per share.

Now there's something very important that we need to note when it comes to the historical growth -- it's been driven largely by share buybacks. When a company buys back its own stock, it ends up with fewer shares outstanding and each share claims a larger piece of the overall profit. Continue this process year after year, and a company can show steady growth in earnings per share without much overall profit growth.

At the end of the March quarter, Kimberly-Clark had 411 million shares outstanding, down from 541 million in March 2001. Operating profit, however, was $2.7 billion in the 12 months ending in March 2001 and was a strikingly similar $2.7 billion in the past 12 months.

This isn't a terrible thing -- share buybacks are a way for a company to return cash to shareholders and can be a positive if done properly. But given the company's weak profit growth, we probably want to temper our expectations for the future.

For my model, I used 5% earnings growth as an optimistic case, 3% for my base case, and a stagnant 0% for my downside case.

Pinning down valuation
Valuations are a moving target that can be tough to predict, but, as with growth above, using a range of values can give us a view of our potential returns without requiring a Miss Cleo-type prescience.

In creating our range, a good place to start is where the stock is trading right now and what its historical trading range has been. Right now, Kimberly-Clark's stock changes hands at 15.5 times trailing earnings. This is toward the lower end of the range for the stock as its annual average earnings multiple was between 13.5 and 20.2 during the stretch between 2000 and 2010.

For broader context we can also look at how similar companies trade.

Company

Forward P/E

Estimated Growth

Procter & Gamble (NYSE: PG) 16 9.5%
Colgate-Palmolive (NYSE: CL) 16.6 9.3%
Avon Products (NYSE: AVP) 14.3 10.9%
Clorox (NYSE: CLX) 17.6 8.7%
Energizer Holdings (NYSE: ENR) 12.9 9.6%
Church & Dwight (NYSE: CHD) 18.4 11.3%

Source: Capital IQ, a Standard & Poor's company.

The fact that all of these companies sell consumer staples gives us a pretty good basis for comparison for Kimberly-Clark. Interestingly, Kimberly-Clark's multiple falls almost right at the midpoint of the group, despite the fact that its expected growth is lower.

Because of Kimberly-Clark's position among comparables and the stock's history, I don't think it would be prudent to expect much multiple expansion in the years ahead. As a result, I set my base-case price-to-earnings ratio at 16, my upside case at 18, and the downside case at 14.

Dividends and share count
Our final stop is to consider how much we'll get paid through dividends and whether changes in share count will affect our bottom line.

We've already touched on share count above and my main concern -- that I'll end up with a company that dilutes my ownership stake -- is basically nonexistent with Kimberly-Clark. If anything, we can expect further reductions in the share count.

Kimberly-Clark has a great dividend history and has not only paid, but raised its dividend every year over the past 39 years. Historically, the company has had a very solid dividend growth rate -- over the past 10 years it's been nearly 10% per year. However, given the company's sluggish profit growth, I think that growth rate may slow to avoid bringing the payout ratio to dangerous levels.

For my optimistic case, I assumed dividends would grow at 8% per year, while for the base- and downside-cases I used, respectively, 6% and 3% growth rates.

The verdict please!
The end result of all of this is the returns we can expect under the various scenarios. Here's what my three scenarios would look like.

Scenario

Annual Earnings-Per-Share Growth

Earnings Multiple

Annual Dividend Growth

Expected Annual Returns

Upside 5% 18 8% 12.6%
Mid-case 3% 16 6% 8.2%
Downside 0% 14 3% 2.6%

Source: Author's calculations.

Let's now go back to that question that we started with: Is it time to buy Kimberly-Clark's stock?

At the mid-case, the returns of 8.2% seem pretty fair -- that is, for a company with the size, stability, and brand power of Kimberly-Clark, that's a reasonably attractive return. However, I don't think it's such an outstanding outlook that I'm going to rush to pull the trigger. If the stock were to fall to $63 or below though -- which would push the mid-case returns to 10% per year -- it could be a different story.

Of course, the future is an ever-changing picture, so you need to keep on top of what's going on at Kimberly-Clark to see which set of numbers the company and stock are able to live up to. And you can do just that by adding the stock to your Foolish watchlist.

The Motley Fool owns shares of Clorox. Motley Fool newsletter services have recommended Procter & Gamble, Energizer Holdings, Clorox, and Kimberly-Clark. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Fool contributor Matt Koppenheffer does not have a financial interest in any of the companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or Facebook. The Fool's disclosure policy prefers dividends over a sharp stick in the eye.