Historically, companies operating in the household and personal product industry have consistently generated double digit returns. This industry has been one of the best choices for conservative investors. Price stability, financial strength ratings, and earnings predictability are naturally very favorable. On top, most of these equities are offering appealing dividends with steady price appreciation.
The household and personal product industry is sought as defensive investments because this industry provides solid downside protection in challenging periods. This industry is relatively established; thus, sales and earnings flows are comparatively stable and predictable right through the business cycle.
For consistently increasing profitability, their business strategy always involves mergers and acquisitions. Overseas expansion and innovation are another means to capture mass or niche market share. Kimberly Clark Corp (NYSE:KMB) is one of the best large caps operating in the household & personal products industry. In this piece of writing, I look at Kimberly Clark’s financial situation for sustainable returns.
Kimberly-Clark dividend profile
It is seen as one of the best and safest companies for income oriented investors. At the moment, it offers a quarterly dividend of $0.81 per share, yielding 3.32%. In the past five years, it has been able to enlarge its annual dividends from $2.12 per share in 2008 to $3.24 per share in this current year. It has been also managed to increase its payout ratio over the past several years. At present, its payout ratio based on dividends stands at 65.9%.
Kimberly Clark Corp (NYSE:KMB)’s share price has also gone up over the past years with a solid dividend and strong financial position. In the past five years, its price went up by nearly 57%. At the time of writing, its stock is trading at $97.68 which is off from its 52 week high of $106. At the current price, its stock is trading at 21.6 times earning, which looks a bit pricey to me.
Kimberly Clark Corp (NYSE:KMB) and its well-known global brands are an essential part of life for people in more than 175 countries. Each day, about a quarter of the globe’s population trusts its K-C brands. With solid brands like Scott, Kleenex, Huggies, Kotex, Pull-Ups and Depend, Kimberly-Clark holds the No. 1 or No. 2 share position in over 80 countries.
With these solid brands, it is generating increasing profits year over year. Kimberly Clark Corp (NYSE:KMB) is operating under four business segments named Personal Care Segment, Consumer Tissue Segment, K-C Professional (KCP) Segment and Health Care Segment. All business segments are generating solid result for the company.
Recently, Kimberly Clark Corp (NYSE:KMB) announced second quarter results with consolidated sales of $5.3 billion. In the second quarter, it was able to grow organic sales by 3%; however, it lost 2% of sales in conjunction with pulp and tissue restructuring and European strategic changes. Still with the slow growth in the top line, it has been able to achieve 6% growth in operating profits.
The company is strongly working on cost saving measures which led it to increase operating profit by $80 million. As a result of cost saving measures, it has improved adjusted operating profit margin by 80 basis points and reported an 8% increase in adjusted earnings per share in the latest quarter. For the full year, it is anticipating saving $300-$350 million through the cost saving program and organic sales growth of 3% to 5%, led by K-C International.
|In million||2011||2012||Trailing twelve months|
|Operating cash flow||$2,288||$3,288||$3,310|
|Free cash flow||$1,320||$2,195||$2,202|
Kimberly Clark Corp (NYSE:KMB) has been showing a strong cash position to sustain its dividend. Its operating and free cash flows are growing year over year. In the trailing twelve months, its free cash flow stands at $2.2 billion when dividend payments accounted for only $1.1 billion. I believe its dividend is sustainable as long as its free cash flows provide full coverage to its dividend payments.
Kimberly Clark Corp (NYSE:KMB)’s main industry peers are The Procter & Gamble Company (NYSE:PG) and The Clorox Company (NYSE:CLX). Procter & Gamble provides branded consumer packaged goods. Procter & Gamble is seen as one of the safest companies for dividend investors. Recently, this company increased its quarterly dividend to $0.6015. P&G has a long history of dividend increases. In the past year, its payout ratio stands at 56%, which offers more room for dividend increases.
The Procter & Gamble Company (NYSE:PG) has a strong financial situation to back its dividend payments. Both its top and bottom line performances are strong. Its profitability is improving as global market share trends improved. P&G is seeking to enhance profits with organic growth and cost cuttings. For this full year, P&G is expecting to generate organic growth of 4%. It is expecting to generate earning per share growth of more than 10%.
The Clorox Company (NYSE:CLX) is a manufacturer and marketer of consumer products. Clorox is also considered as a safe bet for income seekers. Recently, Clorox increased its quarterly dividend by 11% to $0.71 per share. This company is planning to sustain returns by improving productivity across its operations, increasing investments in demand-building programs and delivering meaningful product innovation.
The Clorox Company (NYSE:CLX) is seeking to achieve 4% growth in its top line by the end of this year. Additionally, this company is also working on cost saving plans to enhance operational income. It continues to expect earnings before interest and taxes margin to enlarge 25-50 basis points for the full year.
This industry is coming out of recession. Companies in this industry are working on cost cutting measures, innovations and emerging markets. With these plans, these companies are generating both top and bottom line performance. Kimberly Clark Corp (NYSE:KMB) is generating high bottom line performance when the top line is bit low. It has the ability to generate hefty cash flows, which is a positive sign for its dividend sustainability.
The article Prospects Look Bright for Kimberly Clark originally appeared on Fool.com and is written by siraj sarwar.
siraj sarwar has no position in any stocks mentioned. The Motley Fool recommends Kimberly-Clark and Procter & Gamble. siraj is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.