Dividend Stock Analysis: Kimberly-Clark Co.

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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 producing tissue, personal care, and health care brands, including Huggies, Pull-Ups, Kotex, Depend, Kleenex, and Scott.

Fair Value: In calculating fair value, I consider the NPV MMA Differential Fair Value along with these 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. Since KMB's tangible book value is not meaningful, a Graham number can not be calculated. When also considering the NPV MMA Differential, the stock is trading at a slight discount to its calculated fair value of $102.34. 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 one Star in this section for 3.) above. 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 54 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) or Treasury bond? 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 $709. 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 5.21% exceeds the 3.75% estimated 20-year average MMA rate.  

Peers: The company's peer group includes: The company's peer group includes: Procter & Gamble Co. (PG) with a 2.6% yield, Colgate-Palmolive Co. (CL) with a 2.5% yield, and Clorox Corporation (CLX) with a 4.8% yield.

Conclusion: KMB earned one Star in the Fair Value section, earned one Star in the Dividend Analytical Data section and earned one Star in the Dividend Income vs. MMA section for a total of three Stars. This quantitatively ranks KMB as a 3-Star Hold stock.

Using my D4L-PreScreen.xls model, I determined the share price would need to increase to $108.70 before KMB's NPV MMA Differential decreased to the $500 minimum that I look for in a stock with 54 years of consecutive dividend increases. At that price the stock would yield 4.7%.

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 0.5%. This dividend growth rate is lower than the 1.6% used in this analysis, thus providing a margin of safety. KMB has a risk rating of 1.5 which classifies it as a Low risk stock.

KMB has an array of solid brands and an excellent relationship with its retailers. The company's Free Cash Flow Payout at 104% (up from 57%) is above my maximum level of 60%, and its Debt to Total Capital at 82% (down from 88%) is well above the 45% maximum I look for. KMB is trading at a premium to my calculated fair value of $102.34, and given its dividend fundamentals, I will wait for a more opportune time before adding to my position.