Updated Jan 23, 2023 Quinn Mohammed
Investors looking for quality dividend increasing stocks should take a closer look at Dividend Aristocrats, the 65 companies in the S&P 500 index that have increased their dividends for over 25 consecutive years.
With this in mind, we have compiled a list of all 65 Dividend Aristocrats.
Click the link below to download the full spreadsheet of all 65 dividend aristocrats, along with some key financial metrics such as dividend yields and price/earnings ratios.
We review each Dividend Aristocrat each year, and this year’s next stock is consumer goods giant Kimberly-Clark (KMB).
Kimberly-Clark continues its impressive 50th consecutive year of dividend increases. Recent increases put Kimberly-Clark on the exclusive Dividend Kings list.
Also, the current dividend yield is 3.4%, more than double the S&P 500 Index’s average dividend yield of 1.6%.
This article discusses Kimberly-Clark’s business model, growth potential, and whether the stock is currently trading at an attractive valuation.
Business overview
Kimberly-Clark’s beginnings date back to 1872. Four young businessmen, John A. Kimberly, Havilah Babcock, Charles B. Clarke, and Frank C. Shattuck, set up Kimberly-Clark & Company with $30,000 in start-up capital.
Today, Kimberly-Clark is a global consumer goods company that operates in 175 countries and sells disposable consumer products such as paper towels, diapers and tissues.
It operates in two segments, the Personal Care segment (Huggies, Pull-Ups, Kotex, Depend, Poise) and the Consumer Tissue segment (Kleenex, Scott, Cottonelle, Viva), generating approximately $20 billion annually. Earnings.
Source: Presentation for investors
Kimberly-Clark reported third quarter 2022 earnings on October 25th, 2022. The company exceeded estimates on the top line, but underperformed on the bottom line. The company’s revenue was $5.05 billion, up nearly 1% year-over-year, and adjusted earnings per share were $1.40.
Price increases implemented to offset inflation costs resulted in a 9% gain in the third quarter, offset by lower volumes.
Management has led to 2022 net sales growth of 2% to 4% and adjusted earnings per share at the lower end of the range of $5.60 to $6.00.
growth outlook
Kimberly-Clark has committed to elevating its core brand as one of its three pillars of growth over the next few years. This is achieved by initiating a range of product innovations through expansions of existing lines and entirely new products. The company will also continue to manage revenue through pricing and mix and promotional strategies.
Finally, the company uses its significant marketing expertise to pursue low-penetration categories, drive market share gains, and ultimately boost revenue and profits.
The second pillar of growth is accelerating growth in developing and emerging (D&E) markets, which account for the majority of the company’s sales. The company focuses specifically on the personal care and professional segments, with the most significant opportunities coming from the category’s penetration and low-use locations.
Source: Presentation for investors
The company’s D&E development focus is particularly on Latin America and China, where even smaller markets are seeing meaningful momentum. Kimberly-Clark plans to use its critical supply chain and marketing experience to pursue growth in areas where it is currently underperforming, which will drive some incremental growth should be.
And Kimberly-Clark continues to seek hundreds of millions of dollars in cost savings annually. Therefore, the company is working to increase his earnings per share from all angles, including increasing earnings, expanding margins and share buybacks.
Overall, we expect 5% annual EPS growth over the next five years.
Competitive Advantage and Recession Performance
Kimberly-Clark’s most important competitive advantage is its brand and global reach. The company enjoys leadership positions across its portfolio of brands, and indeed worldwide.
We maintain our competitive advantage through marketing and innovation. Kimberly-Clark spends over $1 billion annually on advertising, research and development. This allows the company to stay ahead of its competitors. Given our commitment to the growth pillars, we expect this to increase over time.
Additionally, Kimberly-Clark’s global reach provides the company with efficiencies to keep costs low. The FORCE program is an example of our ability to manage costs even as revenues increase, and has had years of success in reducing operating costs.
Kimberly-Clark remains highly profitable even during a recession. For example, it performed well during the Great Recession of 2007-2009. Here’s his earnings per share during the Great Recession:
- Earnings per share of $4.25 in 2007
- Earnings per share of $4.06 in 2008 (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, Kimberly-Clark experienced a decline in revenue in 2008 and 2010, but still posted double-digit growth in 2009. I need it regardless of my financial situation.
Consumers always need personal care products regardless of their economic situation. This allows Kimberly-Clark to obtain a consistent level of demand for its products each year, even during economic downturns.
Valuation and Expected Return
Kimberly-Clark trades at a price/earnings ratio of 24.1 based on adjusted earnings per share of $5.60, the bottom of 2022 guidance.
Excluding outlier years, Kimberly-Clark has traded at an average price-to-earnings ratio of around 18 over the past decade. It is also an estimate of the fair value of the stock. So the stock currently looks overvalued.
If the stock valuation shrinks from 22 to 18 over the next five years, the annual return will decrease by 5.7% annually.
Furthermore, future returns are generated from earnings growth and dividends. Given the company’s strong brand and growth catalyst, 5% average annual earnings growth is a reasonable expectation. It also has a dividend yield of 3.4%. In total, we expect a return of 2.8% per annum over the next five years.
Despite strong yields, a 50-year history of dividend increases, and modest growth projections, the stock’s high valuation makes it an unlikely target for new investment at this time.
final thoughts
Kimberly-Clark is a quality company with a diverse portfolio of strong brands. A very reliable dividend stock with growth potential. Emerging markets, cost cutting and share buybacks highlight future earnings growth.
Kimberly-Clark has increased its dividend for 50 consecutive years and currently yields 3.4%. Therefore, it should meet our definition of a blue-chip stock and continue to steadily increase its dividend each year.
If you’re looking to find more quality dividend growth stocks for your long-term investment, the Sure Dividend database is here to help.
Major domestic stock market indices are another solid resource for finding investment ideas. Sure Dividend compiles and updates the following stock market databases monthly.
Thank you for reading this article. Send any feedback, corrections, or questions to support@suredividend.com.