My paycheck just came in for the month, so with that comes a new investment!
Today, I bought 23 shares of Kimberly-Clark Corp (NYSE: KMB) at $107.19 per share.
Honestly, I don’t really have time to write a full analysis of KMB. I’m actually going to be driving to see my grandparents this weekend. I’m still busy with planning and packing, so I’ll just give a quick rundown and pass through my criteria:
KMB doesn’t really need an introduction. Most DGIs have at least heard of this consumer products company, or actually own shares in their portfolio. From their 2013 annual report:
We are a global company focused on leading the world in essentials for a better life through product innovation and building our personal care, consumer tissue, K-C Professional and health care brands. We are principally engaged in the manufacturing and marketing of a wide range of products mostly made from natural or synthetic fibers using advanced technologies in fibers, nonwovens and absorbency.
KMB owns several famous and highly-regarded brands, such as Kotex, Depends, Kleenex, Cottonelle, Scott, and Huggies. It is also a Dividend Aristocrat, with 42 years of consecutive dividend increases. More info is available on the company’s website.
Let’s run our basic screening criteria on it, with the help of David Fish’s US Dividend Champions List:
- Pays a dividend: Yes
- Has 5 years of dividend increases: Yes (42 years)
- Has not frozen dividend for over 8 quarters: Yes
- Has a Chowder number of 12 or more: No (10.0)
- Has am EPS payout ratio of less than 70%: Yes (60.32%)
- Pays a dividend monthly or quarterly: Yes (Quarterly; March, June, September, December)
Ooooh, so close on that Chowder rule. Can we recover on the secondary criteria? Let’s look at the FAST Graphs chart:
- Has an S&P Quality Ranking of ‘A-‘ or better: Yes (A)
- Has generally increasing earnings over the past 10 years: Yes
- Is fairly valued/undervalued according to the Normal P/E ratio (blue line): No
- Is fairly valued/undervalued according to the Intrinsic P/E ratio (orange line): No
Other Bonus Ratings:
- S&P Capital IQ: 2-star sell
- Scale is 1-5, 1 being ‘strong sell’, 5 being ‘strong buy’
- Thompson Reuters StockReport: 7 (optimized score of 6)
- Scale is 1-10, 10 being best, 1 being worst
- Optimized scores weight insider trading and price momentum heavier than other criteria
- Value Line: 1 for safety; 3 for timeliness
- Scale is 1-5, 1 being best, 5 being worst
Oh man. KMB fails the Chowder rule, and looks overvalued. So why did I buy it anyway?
- To lower my cost basis. I made a mistake opening up my first position when I did. I first bought close to the 52-week high, and my cost basis is mid-$112 a share. So now that I was given a decent opportunity to lower that, I took it. Besides, KMB has an estimated total return rate of 7.1%, which isn’t terrible for a company in such a slow-growing industry. We’re also looking at an earnings growth rate of 6.6%, because people will always need tissues and diapers (Source: FAST Graphs). It could be argued that declining birth rates and other factors could have a negative impact on EPS, but I don’t believe KMB will be going out of business any time soon. The management team is great (Morningstar has a stewardship rating of “Exemplary”), and I have no doubt they’ll take good care of the company. Further, the company takes its dividend seriously, and also likes to return capital via share buybacks (Source).
- KMB will be spinning off its K-C Healthcare division to shareholders on November 1st. The company will be called Halyard Health, and will trade on the NYSE under the symbol HYH. Several SeekingAlpha articles explain the details better than I can, so I’ll just link to them here and here. Generally, I think the spin-off is a positive. It should unlock decent value in both KMB and HYH, and allow them both to focus on what they do best.
So at the end of the day, yes, KMB doesn’t seem to be the best value on the market (click here for a company I think is undervalued). However, its strength as a company is indisputable, and the spinoff should unlock some good value in the coming years. I feel safe putting my money in KMB, even though I may have overpaid slightly, and that’s all that really matters.
[UPDATE 10/07/2014] KMB shareholders will receive 1 share of HYH for every 8 shares of KMB they own.
This purchase will add $77.28 to my annual dividend income.
So what do you think? Did I overpay for KMB? What have you bought recently?
Disclosure: Long KMB. My portfolio page has been updated accordingly. Please read my disclaimer here before choosing to invest. Image source is available here and here.
16 Comments
I’ve been looking at KMB for a while now but have yet to pull the trigger. If the stock drops down a bit more in the recent pull back I might initiate a position. There are just other stocks out there that’s higher on my radar than KMB. Good buy!
Yeah, I can’t blame you for holding off. It’s a solid company, but low-growth, and there are usually some better stocks to look at first. I just bit the bullet and bought a starting position a while back, back when I had some extra cash. I certainly won’t be adding again for a while (I’m now at a full position), unless the valuation becomes very compelling. Thanks for stopping by!
I like how you’re building your portfolio one brick at a time. I chose to buy mutual funds and ETFs, but still fondly recall making my first investment plan and the excitement of buying my first fund in my new investment plan. $3000 of Vanguard Pacific fund, which I later sold and moved all large cap international $$ to Developed Markets or Total International.
It’s easy for me to see how you’re building up income a small bit at a time with each paycheck. Pretty crazy to think how the income you have today will grow from new purchases and increases in the dividends for each position.
Hey, thanks for stopping by, Justin! No matter what way we go about it (indexing or DGI), as long as we keep investing, we’ll be fine. I definitely see the effects in compounding in my larger individual positions. With every dividend reinvestment, I started buying 0.1 shares, then 0.2, then 0.5. Next thing you know, it’ll be 2 or 3 shares per quarter! All the best!
DD,
I agree. KMB isn’t exactly a steal here. But you picked up equity in a pretty solid company, and you probably paid pretty close to a fair price, if a tad high. Nothing wrong with that if you’re holding for the long term.
I’m actually more concerned about the lack of growth than I am the valuation. Maybe they’ll be able to fix that in the future. In the meanwhile, the yield is solid and the dividend is well-covered.
Cheers!
You got it! Slightly overvalued, but the dividend is decent and safe. I guess I view these companies like I do CL, T, and XOM. Low growth, but definite SWAN stocks. Good companies to base a portfolio on and reinvest dividends in, or use the cash for faster-growing investments. Don’t need to worry about them much, if at all. Thanks for stopping by!
A bit overpriced imo. But a solid company that you can keep adding if it goes down. Best wishes
R2R
Agreed. But I bought at a worse price point than I did now, so averaging down is exactly what I did, even though the lower price is still not ideal. And it’s a bit of a spin-off play as well with HYH coming soon, so we’ll see how KMB is affected. Thanks for stopping by!
DDeveloper,
Great company.. If this was your first position – consider adding more on larger dips (5-10% dips) to cost average down. Great job adding to your income goal and if you hold for life/long-term it should pay off well for you!
-Lanny
Hey Lanny, thanks for stopping by. This wasn’t my first position, and cost averaging down is exactly what I did. Definitely would buy more on a very large dip, where KMB actually became undervalued.
While not really the cheapest stock around it still is a great long term buy and has a pretty nice current yield. I have owned KMB since 2007 and plan to keep it as a long term holding. Looking forward to the stock spin off as well coming in 2015. Good buy for a long term hold.
Well said. If it’s a lifetime holding, the price point at which you bought becomes a little less important. I think KMB’ll treat us well if our time frame is decades, not months.
We’ve been watching KMB for awhile but so far have decided to stay on the sidelines. Definitely a company we would like to add to our portfolio eventually. We agree with others in that KMB is a great company to hold for any long term investor. Who knows, if we see another dip, we may just join you as a shareholder.
Best wishes and continued success in your personal finance journey! AFFJ
Yeah, it seems to be one of those companies that is slightly overvalued all the time, so I don’t blame you. Be great to have you aboard as a shareholder when you buy!
Good call on averaging down. You can’t really go wrong with the company, as most people use their products on a daily basis. The only concern is the overall value, but it’s hard to wait to see how far it will come down. In that regard, it was a good time to average down on your existing holding.
I think so too. I wanted to average down before, but by the time I got available money, it had popped up to where I bought it. So rather than wait and risk that happening again, I bought a chunk. Thanks for stopping by!