Unless The Birth Rate Goes To Zero, Kimberly-Clark's 3.7% Dividend Yield Will Rise. Check It Out.

Kimberly-Clark (KMB), the maker of Kleenex, Huggies and similar products, isn’t on Easy Street these days. Lower birth rates in the developed world have dampened disposable-diaper demand. And whenever Kimberly or its arch-rival, Pampers maker Procter & Gamble (PG), raise prices on their branded products, customers start trading down to cheaper generic versions.

But while the company may or may not be able to maintain its historic growth rate, Kimberly-Clark has been a dependable performer for a very long time. And as a producer of non-cyclical consumer staples, its shares tend to outperform the market when the economy sours.

KMB data by YCharts

For dividend investors, Kimberly’s of interest not just for its attractive yield, but because it has raised its dividend in each of the past forty years. That qualifies it as a member of the “Dividend Aristocrats,” a small group of companies that are S&P 500 components and have raised their dividend annually for at least 25 consecutive years. For long-term holders, those reliable stair-step dividend hikes significantly magnify the effective dividend yield over time.

In Kimberly’s case, a buyer who paid $60.20 apiece for Kimberly shares yielding 3.26% in early June of 2006 is now, thanks to subsequent dividend increases, receiving a 4.91% yield on that investment. (And the stock has appreciated by 30% over those same six years.)

KMB Dividend data by YCharts

There’s little reason to think aristocrat Kimberly-Clark won’t continue to deliver dividend increases. Given the cash it throws off and Kimberly’s strong fundamentals, coverage shouldn’t be a problem even though the company’s dividend payout represent a bigger claim on cash than it used to.

KMB Payout Ratio TTM data by YCharts

Is Kimberly-Clark losing some of its momentum? Maybe. Profit margins are narrowing, and revenue growth is showing less oomph. Furthermore, with a multiple of just over 18 times earnings, the stock’s not cheap right now. But for patient dividend investors, the company has plenty to offer.

Naturally, when we buy a stock for the dividend it offers, we’re still acquiring the underlying shares as well. Before committing to an investment, it’s important to check out the company’s fundamentals (YCharts can help with that chore) and to read through its latest 10-K as well.

James P. Miller is an editor for the YCharts Pro Investor Service which includes professional stock charts, stock ratings and portfolio strategies.

Filed under: Company Analysis