Tuesday, September 8, 2015

Recent Buy - KMB


Per my earlier post, one company which has been in my watchlist since the beginning is Kimberly Clark (KMB). I believe it is currently trading close to fair value.


The current TTM P/E is around 60 which is a bit misleading since this is due to a one time charge of around 544 million. This is why you need to check the investor relation website to double check the numbers.



As you know, I am using sharebuilder plan for my regular dividend growth stock purchases. However, I am using spare capital to make instant purchases. This buy is outside my regular purchases. More fees - but larger trade to offset the fees.

Here’s a quick summary of KMB. Sorry - I’ve been busy lately so I don’t have much time for the full analysis.


KMB Overview


Kimberly-Clark (KMB) is a leader in the consumer products industry. The company holds a significant market share in paper hygiene products in more than 80 countries. Kimberly-Clark produces paper products, such as Kleenex, Huggies, and Scott paper towels.


Dividend growth and history


KMB is has long a healthy dividend growth history. It's one of those companies you want in your portfolio. Its yield is quite reasonable now. The per year dividend growth rate range is 5-10% over the last 5 yearsRevenue and EPS 10yrs




A couple of things to look out for:
  • High debt levels than industry peers
  • Slowing sales

See my criteria list below.


KMB Criteria List


KMB 9/2015
Area
Criteria
CheckList
Comment
Quality Company
Dividend Growth
>5 years
Yes
43 Years
ROE/Op Margin
Stable
Yes
Stable
Long term Avg Growth
Stable
Yes
Stable
FCF over Dividends
Yes
Yes
FCF covers Dividends
M* Moat
Wide Moat
No
Narrow
M* & S&P
Credit Rating
> BBB+
Yes
A
Cash to Debt & Interest Coverage, Debt to Equity
Cash Debt >1 or Interest Coverage > 5
Yes, but Debt to Equity very high
Cash to Debt 0.08
Interest Coverage 8.88
Debt to Equity 1031.05
M* & S&P Stars
> 3 Stars for both
Yes
M* 3 Stars
S&P CapIQ 4 Stars A
Payout Ratio
<60%
Yes
59%
Dividend Growth
& Yield
Dividend Yield
>3%
Yes
3.40%
Dividend Growth
>5%
Yes
7.00%
Chowder
>12%
No
10.40%
Valuation
Yield/Avg Yield
>1.1
No
1.03
Dividend Yield Theory Mid Point
Below Mid Point
Yes
Mid Point 108.01
Low Point 88
P/E
Below Mid Point
Yes
Median 18.41 Current 18.3
DRRM
~10%
Yes
Assuming 6% growth; projected return=10.5%
M* Estimate
<M* est
Yes
M* 105
S&P Estimate
< S&P cap IQ est
Yes
S&P Cap IQ 120
* Data from M*, Gurufocus, Yahoo, Google Finance


Dividend Yield Theory Valuation



Which gives the high and low yields of 4 & 2.75.


KMB Yield Valuation Estimate


High Price:
128.01
Mid Price:
108.01
Low Price:
88.01


DDRM Return & Average Valuation



DDRM

Dividend Rate ($)
3.52
Divided by: share price
103.54
Current yield (%)
3.40
Core Growth Estimate (%)
6.00
Divided by: ROE (%)
31.11
Multiplied by: EPS ($)
5.77
Cost of Growth (%)
1.11
Earnings per Share ($)
5.77
Minus: Dividend
3.52
Minus: Cost of Growth
1.11
Funding Gap ($)
1.14
Divided by: Share Price ($)
103.54
Share Change (%)
1.10
Core Growth (%)
6.00
Plus: Share Change (%)
1.10
Total Dividend Growth (%)
7.10
Plus: Dividend Yield (%)
3.40
Projected Total Return (%)
10.50


Dividend Rate ($)
3.52
Required Return (%)
10.00
Growth (%)
7.10
Price
121.31


Dividend Rate ($)
3.52
Required Return (%)
10.00
Growth (%)
6.00
Price
88.01


Average
104.66


I think the fair value is around $105. KMB estimate is $105. S&P CapIQ is $120.


Recently, I added 14 shares of KMB to my DGI portfolio.


Action
Security
Price
Quantity
Amount
Buy
MMM
$103.99
14
$1455.86


The purchases increases my forward estimated dividend by $49.28.


What do you think off KMB?

D4s

10 comments:

  1. Nice buy! This one has caught my attention lately as well. I learned a lot from your summary. I have a little catch up to do on your site! Great stuff - You've been busy lately!

    Brian @ InvestinginAutism

    ReplyDelete
    Replies
    1. Thanks For visiting Brian.
      Yes I have been busy at home and at work - and investing. The market opened up this last couple of weeks, so we have some good opportunities. KMB is at the fair line - so it could go either way. It's more of an entry point for me so let's see how it goes.
      D4s

      Delete
  2. Interesting purchase, Div4Son. I havent looked into staples like KMB In a long time...need to take a dive and evaluate them.

    Thanks for sharing
    R2R

    ReplyDelete
    Replies
    1. R2R,
      The market opened up for the staples as well as many others so it's a good time to load up on the ones on sale.
      D4s

      Delete
  3. I don't see huggie will go out of business anytime soon as it's the world brand. Regardless of the cloth diaper movement, people will always go for convenience. I don't see the birth rate decline anytime either. It's a good busineses to own. Congrats on adding the dividend.

    ReplyDelete
    Replies
    1. Vivianne,
      Thanks. I agree that KMB has wonderful brands. Top 1 or 2 brands in 80 markets. Thanks for your comment!
      D4s

      Delete
  4. I have nothing bad to say about KMB. I have held it for along time in my portfolio and it has performed well. I still am not too crazy about it at today's price/value but long term it's a solid consumer name. I wish their recent spin off of HYH would pay a dividend though. Right now I have a small position in both my ROTH and taxable account that doesn't do anything. It's nice when a spin off can also pay a dividend. Great buy!

    ReplyDelete
    Replies
    1. Divhut,
      By my estimation, the price is at the kid point so I understand for waiting to drop a few more percentage points. Probably at 100 will give you around 5% downside risk position.
      I plan to hold for the long term and the position is relatively small which means I can add to this over time.
      Thanks for visiting.
      D4s

      Delete
  5. Nice buy D4S...gotta love this dividend champion with 43 years of growth! We don't own any shares but it is on our watch list. Way to add another roughly $50 to your forward dividends!

    Keep adding to that passive income stream. Best wishes! AFFJ

    BTW...your buy chart was not changed from your last purchase of MMM. ;)

    ReplyDelete
    Replies
    1. Thanks AFFJ for my copy and paste error. I've been using my template too much!
      D4s

      Delete