Kimberly-Clark (KMB)

Kimberly-Clark has many well-known, established brands such as Kleenex and Scott. While there may be competition from lesser known brands, Kimberly-Clark has a great deal of loyalty and offers diverse products within classes, providing a range of price options. People call generic facial tissue Kleenex--with that type of brand recognition the company is definitely doing something right.

Trading below its 200-day average, this defensive stock may make a mildly attractive addition to a diversified portfolio. There is little downside risk,with the stock trading at $63.72 per share(52 week range of $61.94-$72.79), a dividend of 3.65% and a modest PE of 16.3. Kimberly-Clark appears to be a well run company. Return on assets is 9.87%, return on equity 30.39% and return on investment capital 13.95%. Gross profit margins are 31.07%, operating margin 14,25%, EBITDA margin 18.49% and overall profit margin 9.53%. Not a growth company, but an increasingly attractive, not-so-stodgy performer that will let you sleep at night.

Emerging market sales are now 31% of revenues, up from 25% a few years ago. Part of the success is driven by KMB's thorough consumer research, which includes home visits and shopping trips with consumers to better understand purchase decisions. The bottom line is now growing faster than the top line.

KMB brands are strong and growing stronger worldwide. Worldwide growth is an excellent story in process for Kimberly-Clark. For instance, only 20% of the families in emerging countries presently use diapers on a regular basis. KMB is using local market strategies and packaging to attract buyers with increasing success.

Kimberly-Clark is a dividend aristocrat as well as a component in S&P 500 index. It has been increasing its dividends for the past 36 consecutive years. KMB has delivered an average total return of 6.60 % annually to its loyal shareholders. over the past 10 years.

At the same time the company has managed to deliver a 7.50 % average annual increase in its EPS since 1998. The company also managed to buy back 2.60% of its outstanding stock annually on average each year since 1999. Annual dividend payments have increased over the past 10 years by an average of 8.30% annually, which is slightly above the growth in EPS. An 8% growth in dividends translates into the dividend payment doubling every 9 years. If we look at historical data, going as far back as 1988, KMB has indeed managed to double its quarterly dividend payments every nine and a half years on average.

If we invested $100,000 in KMB on December 31, 1997 we would have bought 2122 shares. Your first quarterly check would have been $530.50 in March 1998. If you kept reinvesting the dividends though instead of spending them, your quarterly dividend payment would have risen to $1,409 by December 2007. For a period of 10 years, the quarterly dividend has increased by 112 %. If you reinvested it though, your quarterly dividend income would have increased by 167.50%.

KMB is attractively valued with its low price/earnings multiple of 15, and DPR of 51%. The company also pays an above average yield of 3.60%.

Kimberly-Clark has a strong history of bargaining with retailers. For example, sales to Wal-Mart have held steady at 13% of total sales for three years. Wal-Mart can often "bully" suppliers to give them large discounts in exchange for bulk, giving Wal-Mart large margins while leaving little for the manufacturer. Kimberly-Clark has stood up to this, and has maintained prices while also maintaining volume.

The company has decided to increase the price of Huggies diapers and swim pants, Pull-Ups training pants, Goodnites youth pants, Cottonelle and Scott bathroom tissue, and Scott and Viva paper towels from february 2008 by 4% to 7%. This increase is expected to ease the pressure on the margins.

The company is currently attempting to cut costs, through measures such as plant closures and staff reductions. The plan is expected to save over a billion dollars in the next three years, and in the short run this will mean a higher profit margin. In the long run, who knows, but over the next few years Kimberly-Clark should see gains because of the cuts.