Updated April 1st, 2021 by Bob Ciura
Investors looking for high-quality dividend growth stocks should take a closer look at the Dividend Aristocrats, a group of 65 companies in the S&P 500 Index with more than 25 consecutive years of dividend increases.
With that in mind, we’ve compiled a list of all 65 Dividend Aristocrats. You can download the full table of all 65 Dividend Aristocrats, as well as some key financial metrics like dividend yields and value for money, by clicking the link below:
We review each of the Dividend Aristocrats annually, and the next stock in this year’s edition is consumer goods giant Kimberly-Clark (KMB).
Kimberly-Clark has increased its dividend very impressively for 49 consecutive years. The company currently has a dividend yield of 3.3%, which is more than double the average dividend yield of ~ 1.6% on the S&P 500 Index.
This article discusses Kimberly-Clark’s business model, growth potential, and whether the stock is currently trading at an attractive price.
Kimberly-Clark dates back to 1872. Four young business people, John A. Kimberly, Havilah Babcock, Charles B. Clark, and Frank C. Shattuck, have provided $ 30,000 in seed capital to start Kimberly, Clark and Co.
Today, Kimberly-Clark is a global consumer goods company operating in 175 countries, selling single-use consumer products such as paper towels, diapers and handkerchiefs.
The company operates in two segments, each of which has many popular brands: the body care segment (Huggies, Pull-Ups, Kotex, Depend, Poise) and the consumer tissue segment (Kleenex, Scott, Cottonelle and Viva) with annual sales of approximately USD 20 billion in revenue. Kimberly-Clark is a large-cap stock with a market capitalization of $ 48 billion.
Source: Investor Presentation
Kimberly– –Clark reported the fourth quarter and full– –year Result on January 25thth, 2021 and the results were better than expected on both the top and bottom lines. Total sales increased 6% during the quarter to $ 4.8 billion. Organic sale were up 5% when nThe selling prices rose 3% while the volume increased by 2%.
For 2020 oOrganic sales increased 6% as volumes increased 4% and net selling prices and product mix increased 1% each. Adjusted earnings per share of $ 7.74 in 2020 increased 12% from $ 6.89 in 2019. This was a very strong accomplishment for Kimberly-Clark, especially as the U.S. economy slipped into recession due to the coronavirus pandemic. Kimberly-Clark proved its resilience and benefited from the increased demand for personal care products.
Kimberly-Clark expects another year of growth in 2021. The The company targeted 1% to 2% organic sales growth and earnings in 2021– –Per– –Share growth of 1.5% in the middle of the forecast. Along with the provision of the quarterly results, tThe company also increased its dividend for the 49thth consecutive year to increase its dividend by 6.5%. A new $ 5 billion share buyback Approval has also been announced, with buybacks expected in the range of $ 650 million to $ 750 million in 2021.
Kimberly-Clark is committed to making its core brands one of the three pillars of growth in the years to come. To this end, various product innovations are introduced by expanding existing lines and completely new products. The company will continue to manage its revenue through pricing and mix and advertising strategies.
Eventually, it will use its significant marketing expertise to track penetrated categories for market share gains and ultimately higher sales and profits.
The second pillar of growth accelerates growth in developing and emerging countries (D&E), which make up a significant portion of the company’s sales. The company will focus on its personal care and professional segments in particular, with the greatest opportunities coming from locations where it has low category penetration and low frequency of use.
Source: Investor Presentation
The company’s focus for D&D development is particularly in Latin America and China, with smaller markets also seeing a significant boost. Kimberly-Clark plans to use his significant supply chain and marketing experience to drive growth in areas where it is currently underperforming. This should contribute to gradual growth.
Kimberly-Clark continues to strive for cost savings that add up to hundreds of millions of dollars annually. The company achieved cost savings of $ 575 million in 2020 and expects an additional $ 400 million to $ 460 million in 2021.
As a result, the company is attacking EPS growth from all angles: revenue growth, margin expansion, and share buybacks.
As the operating margins are steadily increasing, the increasing profitability helps to make up for somewhat weak sales figures. The management team at Kimberly-Clark has extended this initiative for an additional three years and aims to achieve additional cumulative savings of $ 1.5 billion by 2021. Overall, we expect annual EPS growth of 2 to 3% for the next five years.
Competitive advantage and recession performance
Kimberly-Clark’s key competitive advantages are its brands and global size. The company has a leadership position in its brand portfolio and around the world.
It maintains its competitive advantages through marketing and innovation. Kimberly-Clark spends over $ 1 billion on advertising and research and development every year. This enables the company to stay one step ahead of the competition. Given the commitment to the pillars of growth, we expect this to only increase over time.
In addition, Kimberly-Clark’s global reach provides the company with the efficiency to keep costs down. The FORCE program is an example of its ability to manage costs as sales increase and has had years of success in reducing operating costs.
Kimberly-Clark remains highly profitable even during recessions. For example, it did well during the great 2007-2009 recession. Earnings per share during the Great Recession are shown below:
- 2007 earnings per share of $ 4.25
- 2008 earnings per share of $ 4.06, down 4.5%
- 2009 earnings per share of $ 4.52 (up 11%)
- 2010 earnings per share of $ 4.45 (down 1.5%)
As you can see, while Kimberly-Clark saw profits decline in 2008 and 2010, it also saw double-digit growth in 2009. The reason for its strong performance during the recession is because the company sells products that consumers need to sell regardless of economic conditions.
Consumers always need personal care products regardless of the economic climate. This gives Kimberly-Clark some product demand every year, even during recessions.
Valuation and expected return
Based on adjusted earnings per share of $ 7.80 as of mid-2021, Kimberly-Clark is trading at a value of 17.6.
With no outlier years, Kimberly-Clark has traded at an average value for money of ~ 18 for the past decade. This is also our estimate of the fair value for the stock. Valuation has weakened a bit lately, but stocks are still trading above our fair value estimate.
If the stock valuation rose from 17.6 to 18 over the next five years, it would increase the annual return by 0.5% per year. In addition, future returns are generated from earnings growth and dividends. Given the company’s strong brands and growth catalysts, average annual earnings growth of 2.5% is a reasonable expectation. The stock also has a dividend yield of 3.3%. Overall, we see an annual return of 6.3% over the next five years.
Given the strong returns, 49-year history of dividend increases and moderate growth expectations, we rate the stock as a hold for investors with dividend growth. However, due to its high valuation, the share is currently not a buy for new investments.
Kimberly-Clark is a high quality company with a diverse portfolio of strong brands. It has positive growth prospects for the future and is an extremely reliable dividend stock. Future earnings growth is highlighted by emerging markets, cost cutting, and share buybacks.
Kimberly-Clark has increased its dividend for 49 straight years and currently has a dividend yield of 3.3%. It therefore fits our definition of a blue chip stock and should continue to deliver steady dividend increases every year.
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