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2024/04/26

Is This Dividend Aristocrat Trading at a Royal Discount?

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Is This Dividend Aristocrat Trading at a Royal Discount?

Anthony Summers, Director of Trading, The Oxford Club

Anthony Summers

In a market that often feels like a casino, it's refreshing to find stocks that consistently deliver impressive results year after year.

One such company is Kimberly-Clark (NYSE: KMB), the consumer staples giant behind iconic brands like Kleenex, Huggies and Cottonelle. This dividend dynamo has been a reliable wealth compounder for generations, so I decided to put it through my Value Meter.

To begin with, let's examine Kimberly-Clark's valuation.

The company currently trades at an enterprise value-to-net asset value (EV/NAV) ratio of 48.7. At first glance, that may seem astronomically high compared with the average EV/NAV of 6.8 among similar companies.

However, when we consider Kimberly-Clark's extraordinary cash generation capabilities, its valuation becomes more justifiable.

Last year alone, the company grew its free cash flow by almost 50% - from under $1.9 billion to nearly $2.8 billion.

Chart: Kimberly-Clark's Phenomenal Cash Flow Growth
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Even more impressively, over the past four quarters, the company's free cash flow averaged an astonishing 745.9% of its net asset value. To put this in perspective, the average for companies with a similar cash flow history is a mere 8.6%.

In other words, Kimberly-Clark has generated cash relative to its net assets at a rate nearly 100 times that of its peers.

Put simply, it's in a league of its own.

This robust cash flow is the driving force behind Kimberly-Clark's remarkable dividend track record. The company is a proud member of the "Dividend Aristocrats" club, an elite group of S&P 500 companies that have raised their payouts for at least 25 consecutive years.

But Kimberly-Clark has far surpassed that threshold. It has an impressive streak of 53 years of uninterrupted dividend hikes. The stock currently boasts a forward dividend yield of 3.5% and a manageable payout ratio of 65.8% of forward earnings, so it has ample room to continue its dividend growth.

The company just reported first quarter earnings on Wednesday, though, so let's not get ahead of ourselves. It's not uncommon for an earnings report to include news that tempers investors' sentiment toward the stock.

So, should Kimberly-Clark's results from this past quarter wipe away our optimism... or is it full steam ahead?

Find Out and Get My Rating Here
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