Kimberly-Clark Corporation (NYSE:KMB) stock is about to trade ex-dividend in four days. You will need to purchase shares before the 3rd of December to receive the dividend, which will be paid on the 5th of January.
Kimberly-Clark's next dividend payment will be US$1.07 per share, and in the last 12 months, the company paid a total of US$4.28 per share. Calculating the last year's worth of payments shows that Kimberly-Clark has a trailing yield of 3.0% on the current share price of $141.8. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Kimberly-Clark paid out more than half (61%) of its earnings last year, which is a regular payout ratio for most companies. A useful secondary check can be to evaluate whether Kimberly-Clark generated enough free cash flow to afford its dividend. It paid out more than half (55%) of its free cash flow in the past year, which is within an average range for most companies.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Fortunately for readers, Kimberly-Clark's earnings per share have been growing at 12% a year for the past five years. Kimberly-Clark is paying out a bit over half its earnings, which suggests the company is striking a balance between reinvesting in growth, and paying dividends. This is a reasonable combination that could hint at some further dividend increases in the future.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last 10 years, Kimberly-Clark has lifted its dividend by approximately 5.0% a year on average. It's good to see both earnings and the dividend have improved - although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.
To Sum It Up
Has Kimberly-Clark got what it takes to maintain its dividend payments? It's good to see earnings are growing, since all of the best dividend stocks grow their earnings meaningfully over the long run. That's why we're glad to see Kimberly-Clark's earnings per share growing, although as we saw, the company is paying out more than half of its earnings and cashflow - 61% and 55% respectively. In summary, while it has some positive characteristics, we're not inclined to race out and buy Kimberly-Clark today.
While it's tempting to invest in Kimberly-Clark for the dividends alone, you should always be mindful of the risks involved. Our analysis shows 1 warning sign for Kimberly-Clark and you should be aware of it before buying any shares.
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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