2018 has truly been an exciting period for stock enthusiasts. “Volatility is back” has trended for weeks on Twitter (NYSE:TWTR) and investors in consumer staples has seen their portfolio value decrease week by week. Now, a few shares are trading at very attractive prices, but the dominant global tissue and toilet maker Kimberly-Clark seems like one of the best choices in this market.
Kimberly-Clark was founded all the way back in 1872 and is now one of the largest manufactures and sellers of tissues and hygiene products in the world. A few famous brands are Huggies, Kleenex, Citronella, Scott and Kotex. For fiscal 2018, the mean consensus is $110 which provides a positive 6.8% positive spread from the current price at $103. The potential downside is $86 or -16% while the potential upside is $139 or 34%. In so, one could argue that the current price at least provides a fair price for this high-quality company.
If we take a look at the company’s dividend history, Kimberly-Clark has paid an uninterrupted dividend for 24 years and the dividend compounded annual growth rate is around 5-6%. Combine this with a yield close to 4% and we are talking about average annual return close to 9-10%.
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Often, we define a high-quality dividend income stock as a stock that’s able to pass the resistance test. We do this by looking at the sales and see how much the latest financial crisis hit the company. For Kimberly-Clark, the sales seem quite consistent. In the financial crisis, the sales only dipped 4.3% and the stock price fell 33% while the market dropped 55%. One could therefor argue that Kimberly-Clark is a safe income stock.
The graph bellow shows a comparison between Kimberly-Clark, other peers who sell Personal Products and the whole list of the largest companies trading in the United states / S&P500.
From the graph, we can conclude the following: Kimberly-Clark’s strength is in the business predictability, the cheap valuation in terms of P/E, the high yield at 4% and the 4-month revenue revision. The peer to peer analysis show that the company is better than most of its peers in the personal product space, but it shows a general negative trend in terms of hitting the consensus. Surely, shareholders want to see solid earnings instead of volatile reports and news about missed earnings.
Another thing which we can see from the graphs is that the finances for Kimberly Clark are supposedly really bad. In terms of general debt numbers, one could agree. The current ratio is less than 1, the quick ratio is also less than 1, and the net debt to capital is very high. However, the net debt to EBIDTA is just above 2 which means that the company only need a bit more than two years to pay down the debt if they wanted. In so, the financials are way better than what the graphs suggests.
In total, Kimberly-Clark is a rock-solid company which offers a juicy 4% yield and total annual returns close to 10%. It shall be very interesting to see how the consumer staple sector performs in the next bear-market.
Disclaimer: The author owns shares in Kimberly Clark