Where (and Why) to Buy Kimberly-Clark Amid Viral Social Media Claims
The consumer products company has paid a dividend for nearly 100 consecutive years.
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Kimberly-Clark (KMB) has paid a dividend for 92 consecutive years. The Irving, Texas-based consumer products company, well-known for diapers and other personal hygiene products, has raised its dividend for 54 consecutive years.Â
This record of steady, consistent payouts hasn’t helped the stock lately. Year-to-date, Kimberly-Clark shares have lost about 3%, while the benchmark S&P 500 has gained about 10.6%.
Over the past 12 months, Kimberly-Clark shares have lost nearly a quarter of their value. The stock’s recent performance has been abysmal, with shares falling by over 10% over the past five sessions.Â
What’s Wrong With Kimberly-Clark
Kimberly-Clark missed badly in its most recent quarter, earning $1.80 per share versus estimates of $2.01. Revenues came in just shy of estimates.Â
Wells Fargo responded by cutting its price target on Kimberly-Clark from $110 to $105, while maintaining an equal weight rating on the stock. In all, 11 analysts have a hold rating on Kimberly-Clark.Â
Worse, the company lowered expectations going forward, mostly due to slow sales in China. Adjusted earnings per share growth was revised lower, from low double-digits to high single digits.
Allegations in China
The company is being hit by viral social media allegations in China. In that country, there are unverified reports that the company is using a chemical in its diapers that can irritate a baby’s eyes, skin and respiratory tract.Â
Kimberly-Clark strongly denies these allegations, but the damage to the stock has been done. Buyers that step in now stand to benefit if the company is exonerated in the future.
Kimberly-Clark’s Attractive Yield
The farther Kimberly-Clark falls, the higher its dividend yield rises. That healthy 5.2% yield could act as a cushion, softening the blow by attracting yield-seeking investors in the event of a further decline.
Based on its chart, a further decline is certainly possible, due to the stock’s strong downside momentum over the past week (shaded yellow).
As much as we hate to catch a falling knife, we believe shares of Kimberly-Clark are now reaching an area where they are likely to find support. Based on the chart, we believe that Kimberly-Clark’s decline will slow or end in the area between $92 and $96 (shaded blue).
Yield Could Reach 5.5%
If Kimberly-Clark declines into that price area, its yield becomes even more attractive. Assuming there are no changes in the dividend, when priced at just over $93, Kimberly-Clark’s yield would reach 5.5%.
Game Plan
I’m initiating a position in Kimberly-Clark at its current level of $98.50. I plan to add to that position if the stock falls into the low 90s. If the stock continues to decline to the low-to-mid-80s, I’ll head for the exit and take a small loss.
At the time of publication, Ponsi was long KMB.
