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Clean Up With Dividend Aristocrat Kimberly-Clark

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Wednesday, 30 January 2019 04:53 PM Current | Bio | Archive

Investors looking for reliable dividends from high-quality stocks should consider the Dividend Aristocrats, a group of 57 stocks in the S&P 500 Index with 25+ consecutive years of dividend increases.

There are a number of consumer staples stocks on the list of Dividend Aristocrats, including Kimberly-Clark (KMB), which recently increased its dividend for the 47th year in a row.

The consumer staples sector has a number of qualities that allow for consistent dividend growth. Kimberly-Clark is no different. It has a large portfolio of strong brands, pricing power, and a recession-resistant business model.

Dependable Cash Flow From Strong Brands

To become a Dividend Aristocrat, a company needs a business model that can stand the test of time. Trends change, and many products lose popularity with consumers over time. But Kimberly-Clark manufactures products that people will always need, such as tissues, paper towels, and diapers. Its top brands include Kleenex, Scott, Cottonelle, Huggies, Depend, Poise, and more.

Kimberly-Clark recently reported strong financial results for the 2018 fourth quarter and full year. Organic revenue increased 3% for the quarter, indicating strong demand for the company’s products. Total revenue declined 1%, due to unfavorable foreign exchange movements.

Still, Kimberly-Clark generated 2% earnings growth for the fourth quarter. For 2018, adjusted EPS increased 6%. This was a strong performance, especially considering the company is struggling with headwinds including foreign exchange and input cost inflation.

In addition to strong brands, Dividend Aristocrats also hold recession-resistant businesses. Many companies can raise their dividends during periods of economic growth. But to raise dividends for over 25 consecutive years, companies need to continue raising their dividends each year, regardless of the economic climate. The Great Recession resulted in many companies freezing or cutting their dividends.

Kimberly-Clark has a defensive business model. It possesses the ability to generate strong profits even during economic downturns. For example, Kimberly-Clark’s EPS declined just 5% in 2008, followed by an 11% increase in 2009. The company sees stable product demand, even when the economy weakens. This is because people always need basic consumer products.

The strongest businesses also have the ability to cut costs during inflationary periods, when profits are under pressure. Kimberly-Clark expects sales to decline by 1%-2% in 2019, and rising raw materials costs are an additional threat, but EPS is expected to remain flat or modestly increase this year. Global businesses like Kimberly-Clark have the operational flexibility to cut costs when necessary to maintain profitability. Kimberly-Clark’s management team recently extended a major cost-cutting initiative for another three years, aiming for another $1.5 billion of cumulative savings.

A Dividend Aristocrat Cleaning Up For Shareholders

Kimberly-Clark has an attractive 3.8% dividend yield. This is a relatively high yield, as the S&P 500 Index on average yields just over 2% right now. And, Kimberly-Clark is a time-tested company, with the ability to continue raising its dividend each year, even during recessions. While Kimberly-Clark is not growing EPS at a high rate right now, it remains a high-quality dividend growth stock.

Ben Reynolds is CEO of Sure Dividend. Sure Dividend helps individual investors build high quality dividend growth stock portfolios for the long run.

 

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Kimberly-Clark: Clean Up With This Dividend Aristocrat
kimberly, clark, dividend, aristocrat, kmb
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2019-53-30
Wednesday, 30 January 2019 04:53 PM
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