How Kimberly-Clark Keeps Hiking Its Dividend

Kimberly-Clark�(NYSE:KMB), together with its subsidiaries, engages in the manufacture and marketing of health care products worldwide. The company operates in four segments: Personal Care, Consumer Tissue, K-C Professional & Other, and Health Care. This dividend aristocrat has paid uninterrupted dividends on its common stock since 1935, and it has increased payments to common shareholders for 39 consecutive years.

The company�s last dividend increase was in February 2012 when the board approved a 5.70% increase to 74 cents per share. Kimberly-Clark�s largest competitors include Procter & Gamble (NYSE:PG), Colgate-Palmolive (NYSE:CL) and Clorox (NYSE:CLX).

Over the past decade, this dividend growth stock has delivered an annualized total return of 5.70% to its shareholders.

Kimberly-Clark has managed to deliver a 4.40% annual increase in EPS since 2001. Analysts expect KMB to earn $4.83 per share in 2011 and $5.25 per share in 2012. In comparison, KMB earned $4.45 per share in 2010. The company has managed to consistently repurchase 3.10% of its outstanding shares on average in each year over the past decade.

Kimberly-Clark has been trying to increase market share through product innovation and increased marketing. It’s under intense inflation pressure, but it’s also closely watching costs. It has worked closely in streamlining operations in the sluggish North American market, eliminating positions and closing several facilities under its FORCE plan. KMB plans on realizing $400 million to $500 million in annual cost savings through 2013 with its FORCE plan.

Commodity prices could be detrimental to total costs at the company, as is the competitive nature of developed markets in which Kimberly-Clark does business. As with other consumer products companies, growth is likely to come from developing and emerging markets, rather than developed markets.

Developed markets could benefit from cost-cutting and efficiency, which would decrease the total price of doing business. Under KMB�s global business plan, announced in 2003, it’s looking for annual sales growth in the 3%-5% range, EPS growth in the mid- to high-single digits, and dividend increases in line with earnings growth.

The company�s return on equity has mostly remained above 20% over the past decade, with a few exceptions in 2001 and 2006. Rather than focus on absolute values for this indicator, I generally want to see at least a stable return on equity over time.

The annual dividend payment has increased by 9.70% per year since 2001, which is higher than the growth in EPS.

A 10% growth in distributions translates into the dividend payment doubling every seven years. If we look at historical data going as far back as 1974, KMB has actually managed to double its dividend every seven-and-a-half years on average.

The dividend payout ratio has increased from 37% in 2001 to 59% in 2010. A lower payout is always a plus, since it leaves room for consistent dividend growth, minimizing the impact of short-term fluctuations in earnings.

Currently, Kimberly-Clark is attractively valued at 18 times earnings, has a sustainable dividend payout and yields 4.10%.

Disclosure: Long KMB, CL, CLX, PG. For more information, visit DividendGrowthInvestor.com.