Dividend Kings are a prestigious group of companies that have consistently increased their dividends for at least 50 consecutive years. These companies are often seen as reliable investments due to their proven track record of financial stability and shareholder returns.
One such stock that has recently caught Wall Street's attention is Kimberly-Clark (KMB). Known for its iconic brands like Huggies and Kleenex, Kimberly-Clark has been a reliable dividend payer in the consumer staples sector, boasting over 50 years of consecutive dividend growth. Just recently, the company received a double upgrade, when BofA Securities hiked its rating from "Underperform" to "Buy" and raised its KMB price target to $160.
So, what changed BofA's view on this dividend stalwart? And should investors consider jumping in on this newly upgraded consumer giant? Let's find out.
Is Kimberly-Clark a Good Value Right Now?
With a market capitalization of $46.97 billion, Kimberly-Clark (KMB) is a top consumer products player, with a business model that includes Personal Care, Consumer Tissue, and Professional products. Its iconic brands, like Huggies, Kleenex, and Kotex, are household staples in over 175 countries.
Kimberly-Clark stock is up just 2% in the past year, but the shares have gained a very respectable 15.6% on a YTD basis. That compares to a return of 14.8% for the S&P 500 Index ($SPX).
KMB is now valued at 19.59x forward earnings and 2.31x forward sales, which represents a premium to some of its consumer staples sector peers. However, both metrics are a modest discount to KMB's own five-year average valuations, suggesting now is still an opportune time to scoop up this Dividend King.
KMB as a Passive Income Pick
And on the dividend front, Kimberly-Clark continues to show its financial stability and dedication to shareholders. The company recently declared a quarterly dividend of $1.22 per share, marking the 52nd consecutive year of dividend increases, and its 90th year of dividend payments overall.
The annualized payout of $4.88 gives KMB a generous forward yield of around 3.5% at current levels. With a payout ratio of around 68%, Kimberly-Clark returns a significant portion of its earnings to shareholders, and the payout is well-covered by earnings. This makes it an attractive option for income-focused investors.
Q1 Results Inspire Analyst Upgrades
Kimberly-Clark's strong first-quarter performance impressed investors and analysts alike. The consumer products giant topped expectations with revenue of $5.15 billion and adjusted earnings of $2.01 per share, driven by 6% organic sales growth and gross margin expansion of 390 basis points to 37.1%.
Over the last four quarters, Kimberly-Clark has beaten consensus EPS estimates three times, showcasing its consistent performance.
Looking ahead, Kimberly-Clark expects this positive momentum to continue; the company raised its full-year guidance for both organic sales growth and adjusted EPS.
That robust sales volume, coupled with the company's plan to reorganize into three different segments - North American, International Personal Care, and International Family Care and Professional - inspired BofA Securities to grace KMB with a double upgrade.
“Following KMB’s volume inflection in Q1 after two years of volume declines, we see the beginning of a longer-term improvement taking hold in-line with the company’s initiatives from its March 2024 Investor Day,” wrote analyst Anna Lizzul, who raised her price target to $160 from $115.
Kimberly-Clark's Margin Expansion Blueprint
Kimberly-Clark is making big moves in its growth strategy, focusing on margin expansion and sustainability. The business reorganization alone targets $200 million in SGA expenses annually, for starters.
And recently, the company teamed up with Energy Partners to install one of Cape Town's largest rooftop solar systems, a 2.2MW setup at its Epping manufacturing site. This project is part of Kimberly-Clark's goal to boost its renewable energy capacity and hit its 2030 sustainability targets.
These strategic initiatives are expected to strengthen Kimberly-Clark's market position and drive long-term growth, with an eye toward trimming operational costs and expanding margins.
What Do Analysts Expect for KMB?
RBC Capital also likes what it's seeing from Kimberly-Clark, and upgraded the stock to “Outperform,” along with a price target hike to $165.
The consensus rating on this Dividend King has now flipped back to a “Moderate Buy” from a “Hold” one month ago. Out of 21 analysts, 5 recommend a “Strong Buy,” 1 says “Moderate Buy,” 8 suggest “Hold,” and 2 call it a “Strong Sell.”
The average target price is $143.38, not too far from current prices - but the Street-high target of $167 is 18.9% above Monday's close.
The Verdict: Should You Invest in This Dividend Dynasty?
The recent upgrades for Kimberly-Clark are an encouraging sign that analysts are finally buying into the turnaround story. With improving sales, expanding margins, and a renewed focus on maximizing value, the Dividend King seems poised to regain some of its former glory.
For income investors, that rock-solid 52-year dividend growth streak doesn't hurt either. All in all, it's an intriguing setup for a consumer staples giant that seemed dead in the water not too long ago. The analysts have spoken – now it's up to Kimberly-Clark to execute.
On the date of publication, Ebube Jones did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
