Tuesday, October 11, 2011

Kimberly Clark's Dividend Yield

Consumer staples are always a good place to look for investor seeking stable earnings. Consumer staple stocks offer slow growth and sell products that people will buy during good and bad economic times. The earnings stability often makes consumer staple stocks a good dividend play because of the large amounts of cash that they generate. Some of the best dividend payers in the market come from this sector.

Kimberly Clark Corporation (KMB) makes a number of different consumer health and hygiene products. The company manufactures personal care, paper, and tissue products. The consumer staples firm has a portfolio of popular products including Huggies, Kleenex, and Scott. Kimberly Clark competes against heavyweights Proctor & Gamble and Johnson & Johnson. The company has been around since 1872 and has grown to a market cap of $28 billion dollars.

Kimberly Clark is in solid financial shape. The company generates a substantial amount of free cash flow earning $1.7 billion dollars last year and $2.6 billion the previous year. The firm has over $1 billion in cash on the balance sheet and $7 billion in debt. Kimberly Clark is a slow growth company with revenue and earnings growing just under 3% over the past few years. Operating margins are below the industry average coming in at 12.6% for the current year.

The stock trades at 17 times this year’s earnings and 13.7 times next year’s earnings. The stock trades at 5 times book value and 1.4 times sales. Kimberly Clark is attractive to investors because of its long term dividend history. The company increased its dividend 10 percent in February of this year marking the 39th consecutive year that shareholders have seen a dividend increase.

Kimberly Clark pays a dividend of $2.80 per share which comes out to a dividend yield of 3.9%. That places the company in high yield territory. The current payout rate is 64% of earnings which is high but sustainable. The stock is not trading at a bargain level but the dividend yield makes Kimberly Clark an attractive stock to income seekers.

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