Kimberly-Clark (KMB): Take the income stream from this dividend aristocrat

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Investment Thesis: As the market shifted to a more defensive tone, stocks like Kimberly-Clark (NYSE: KMB) will benefit.

Kimberly-Clark is in the household products business:

Kimberly-Clark Corporation, together with its subsidiaries, manufactures and markets personal care and tissue paper consumer products worldwide. It operates through three segments: Personal Care, Consumer Tissue and KC Professional. The Personal Care segment offers disposable diapers, swimwear, training and youth pants, baby wipes, feminine care and incontinence products and other related products under the Huggies, Pull -Ups, Little Swimmers, GoodNites, DryNites, Sweety, Kotex, U by Kotex, Intimus, Depend, Plenitud, Softex, Poise and other brands. The Consumer Tissue segment provides facial tissue and paper napkins, paper towels, napkins and related products under Kleenex, Scott, Cottonelle, Viva, Andrex, Scottex, Neve and other brands. The KC Professional segment offers wipes, tissues, napkins, garments, soaps and sanitizers under the Kleenex, Scott, WypAll, Kimtech and KleenGuard brands.

The company is the fifth largest company in this sector.

My standard method of analyzing a company is to first look at the economic backdrop, followed by a review of the company’s finances (with an eye on security), then its stock chart.

As for the economy, here’s a table of leading, leading, and coincident indicators that I’ve compiled and just updated:

Leading, leading and coincident indicators

Leading, leading and coincident indicators (FRED; author’s calculations)

The number of red financial indicators is increasing: the spreads of commercial paper have increased; the S&P 500 is trending lower; BBB yields are on the rise. While some of the data is yellow out of caution, most is due to lateral movement. Data is usually printed at high levels.

Remember that stress in financial markets usually begins to occur 12 to 18 months before a recession.

Finally, the Fed is in a tight mood. A number of Fed chairs have directly or strongly hinted that they support a 50 basis point hike at an upcoming meeting. Regardless of the actual momentum, rates are heading higher, which is generally negative for equities.

While the economy is expanding, there are reasons to worry about a potential slowdown.

As for KMB, let’s start with gross revenue:

Kimberly-Clark gross sales

Kimberly-Clark gross sales (Looking for Alpha)

Kimberly-Clark is a mature company. As a result, its gross revenue growth appears to have peaked. But it has not diminished.

Percentages of Kimberly-Clark income statement

Percentages of Kimberly-Clark income statement (Looking for Alpha)

Kimberly-Clark’s gross and operating margins have been fairly consistent. The company’s net income has been a little more volatile, but has been positive for the past 11 accounting periods.

Kimberly-Clark Dividend Safety Check

Kimberly-Clark Dividend Safety Check (Looking for Alpha)

Kimberly-Clark is a dividend aristocrat; it has increased its dividend for 49 consecutive years. It currently yields 3.67%. Investors will be attracted to this feature, but will also want to be sure that the dividend is safe. The data above – which uses revenue and cash flow data – shows this to be the case. The third row from the bottom shows that after paying investments and dividends, the company has had cash remaining in all but two past accounting periods. The bottom row shows the amount of cash left after subtracting dividend payments from net income. This number has been positive in all but one of the past 11 accounting periods.

Finally, let’s look at the graphs:

KMB weekly and daily charts

KMB weekly and daily charts (Stock charts)

The weekly chart (left) shows that the stock has been flat for most of the past two years. But it fell sharply at the start of the year, which is best seen on the daily chart. The reason is cost pressure:

Kimberly Clark Corporation KMB has been struggling with escalating input costs for some time now. Cost inflation puts pressure on company profits. The consumer products company has witnessed weakness in the consumer papers segment in recent quarters. Thanks to these declines, shares of the company Zacks Rank #4 (Sell) have lost 12.9% over the past three months, against a decline of 9.1% in the sector.

Cost pressures should not be surprising; we’ve read about how prices have risen over the past 12 months.

The question now is: “Is the worst over?” Most likely. But even if the stock goes down, it will increase its dividend yield, which, in turn, will attract income investors to buy the stock. And don’t forget that the market is taking on a more defensive tone, which plays into the defensive nature of KMB.

It’s a purchase.

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