One of the most attractive combinations of attributes for dividend investors is a stock that pays high dividend yields, and also has a long history of raising those payouts steadily over time. That combination is hard to find, but Kimberly-Clark (NYSE:KMB) is one of the few dividend stocks that gives dividend investors the best of both worlds.
With so much potential to reach new markets with its world-renowned brands, Kimberly-Clark has a great opportunity not just to give investors reliable dividend income, but to produce amazing capital appreciation, as well. Let's look at three reasons why Kimberly-Clark has earned its place among the top dividend stocks in the market.
1. Kimberly-Clark has produced a reliable rising stream of dividends for investors for decades.
Kimberly-Clark has demonstrated its dedication to returning capital to shareholders, and its history of raising its dividend payments each and every year is a big part of its investors' long-term success. For 42 straight years, Kimberly-Clark has boosted its dividend payout each and every year, with more than a tenfold increase in the past 30 years or so.
Moreover, as you can see, Kimberly-Clark has accelerated the pace of its dividend growth recently, with the payout roughly tripling in the past dozen years. Given that the financial crisis came in the middle of that period, the consumer giant's dedication to raising its dividends is a testament to its stability.
2. Kimberly-Clark still has room to grow.
Kimberly-Clark is far from alone as a consumer goods company paying substantial dividend yields. The company's 3.2% yield matches rival Procter & Gamble's (NYSE:PG) current payout, and P&G has an even longer history of 58 straight annual dividend increases. Unilever (NYSE:UL) sports an even larger yield of 3.5%, sharing many of the prospects in higher-growth emerging-market nations that have made investors excited about the consumer goods industry generally.
Yet, in many ways, Kimberly-Clark has an advantage over its larger competitors in that it still has more room to grow. With a market cap of just $40 billion, Kimberly Clark is small enough to seek out new opportunities both in developing innovative products and in presenting them to consumers who've never seen similar ideas before. At the same time, if P&G, Unilever, or other major consumer goods companies want a quick boost to growth, Kimberly-Clark's headline brands, which include Kleenex tissues, Huggies diapers, and Scott towels, would make the company an attractive acquisition target. Either way, Kimberly-Clark investors can profit from the company's current position in the industry.
3. Kimberly-Clark has plenty of capacity for further dividend increases.
The biggest concern for any dividend investor is the possibility that a stock could cut its payout. Certainly, all businesses go through tough periods, and Kimberly-Clark is no exception. Lately, the company has had to deal with rising input costs for the raw materials it needs to make its products, and the strong U.S. dollar has eroded the value of the revenue it earns across the globe. Those factors reduced Kimberly-Clark's earnings growth to near-standstill levels during the first half of 2014, and they might also have contributed to the company's decision to raise its dividend by only about 4% this year rather than the nearly 10% boost it made in 2013.
All top dividend stocks go through tough times; what makes them stand out is their ability to weather those occasional storms. Kimberly-Clark investors can take solace in the fact that the stock's current earnings payout ratio is below 60%, meaning that the company has ample room to keep raising dividends, even if its earnings were to stay flat or fall in the short run. Put another way, with several years' worth of dividend increases in its margin of safety, Kimberly-Clark shouldn't need to disappoint dividend investors anytime soon.
Kimberly-Clark often stands in the shadow of Procter & Gamble, Unilever, and other larger consumer goods rivals. But just like its peers, Kimberly-Clark has demonstrated its value as a top dividend stock, and should continue to do so well into the future.
Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends Kimberly Clark, Procter & Gamble, and Unilever. 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. The Motley Fool has a disclosure policy.