This article originally appeared on The DIV-Net November 8, 2010.
Linked here is a detailed quantitative analysis of Kimberly-Clark Co. (KMB). Below are some highlights from the above linked analysis:
Company Description: Kimberly Clark Corp. is a global consumer products company produces tissue, personal care and health care. Its brands include Huggies, Pull-Ups, Kotex, Depend, Kleenex, Scott and Kimberly-Clark.
Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description:
1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number
KMB is trading at a discount to 1.) and 3.) above. The stock is trading at a slight discount to its calculated fair value of $63.90. KMB earned a Star in this section since it is trading at a fair value.
Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:
1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling 4-yr Div. > 15%
KMB earned two Stars in this section for 1.) and 3.) above. A Star was earned since the Free Cash Flow payout ratio was less than 60% and there were no negative Free Cash Flows over the last 10 years. KMB earned a Star for having an acceptable score in at least two of the four Key Metrics measured. The company has paid a cash dividend to shareholders every year since 1935 and has increased its dividend payments for 38 consecutive years.
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:
1. NPV MMA Diff.
2. Years to > MMA
KMB earned a Star in this section for its NPV MMA Diff. of the $1,736. This amount is in excess of the $500 target I look for in a stock that has increased dividends as long as KMB has. The stock’s current yield of 4.19% exceeds the 3.4% estimated 20-year average MMA rate.
Memberships and Peers: KMB is a member of the S&P 500, a Dividend Aristocrat and a member of the Broad Dividend Achievers™ Index. The company’s peer group includes: Procter & Gamble Co. (PG) with a 3.0% yield, Colgate-Palmolive Co. (CL) with a 2.7% yield, and Clorox Corporation (CLX) with a 3.5% yield.
Conclusion: KMB earned one Star in the Fair Value section, earned two Stars in the Dividend Analytical Data section and earned one Star in the Dividend Income vs. MMA section for a total of four Stars. This quantitatively ranks KMB as a 4 Star-Buy.
Using my D4L-PreScreen.xls model, I determined the share price would need to increase to $97.58 before KMB’s NPV MMA Differential decreased to the $500 minimum that I look for in a stock with 38 years of consecutive dividend increases. At that price the stock would yield 2.71%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $500 NPV MMA Differential, the calculated rate is 2.2%. This dividend growth rate is well below the 6.7% used in this analysis, thus providing a reasonable margin of safety. KMB has a risk rating of 1.25 which classifies it as a low risk stock.
KMB enjoys stable demand for its household and personal care products. The company is working to increase its market share through product innovation and marketing. In the face of commodity prices above long-term averages, the company is doing a good job of closely managing its cost structure. At 51% KMB’s debt to total capital is above the 45% that I look for. However, it has trended down from 61% back in July. I will look to add to my KMB position while it is trading below my $63.90 fair value price. For additional information, including the stock’s dividend history, please refer to its data page.
Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.
Full Disclosure: At the time of this writing, I was long in KMB (2.4% of my Income Portfolio). See a list of all my income holdings here.
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