Kimberly-Clark: A Regal Opportunity in This Dividend King

Key Points

• Kimberly-Clark is turning around its business and is on track to drive shareholder value gains for the next decade.
• Dividend King can sustain its payments and distribution growth outlook while buying shares and improving operations. 
• Analysts moderated their price targets early in 2025 but remain steadfast in their ratings and see a double-digit upside at the consensus price target.

Kimberly-Clark NYSE: KMB is a high-yielding Dividend King offering an attractive entry point early in 2205. The stock is trading near the low end of a long-term trading range with value relative to historical norms, the consumer staples sector, the broad market, and a high and reliable dividend yield. The demand for this stock may wallow in the year’s first half, but the long-term outlook is bright and likely to improve the demand over time. The company is deep in a turn-around that includes restructuring and divestiture, with margins improving and sustained, with mid-to-high single-digit top-line growth forecasted well into the next decade. 

Kimberly-Clark’s dividend is attractive, with the stock off of its 2024 highs. The stock yielded nearly 3.75% in late January, including the 53rd consecutive dividend increase issued with the F2024 results. The company increased the payment by another 3.4%, aligning with the sustainable trend. More importantly, dividend safety is improving due to the improved cash flow. Debt remains elevated but fell significantly in Q4 and should continue declining in 2025. 

Kimberly-Clark Issues Mixed Results, Guides for Growth in 2025

Kimberly-Clark posted mixed results for Q4 2024 due primarily to the impact of its divestitures, restructuring costs, and FX headwinds. However, the company’s reported $4.93 billion in consolidated revenue is down only 0.8% from the prior year and outpaced the consensus by a slim margin. The better news is that organic growth was present in all segments, led by 5.3% in International Personal Care. North American sales were more tepid at 1.1%, trailed by a 0.7% increase in International Family & Professional. The critical detail is that organic sales growth is due to a 1.5% systemwide volume increase aided by a lesser impact from mix and pricing.

The margin news is also mixed, with margins impacted by FX but offset by productivity gains. The bad news is that adjusted earnings are down -0.7% compared to last year and missed MarketBeat’s reported consensus by a penny; the good news is that adjusted gross margin widened by 50 basis points, and adjusted operating profit is up by 2.1%. Full-year cash from ops was also solid, despite the impact of restructuring, providing $3.2 billion in cash flow and nearly $2.25 billion in free cash flow when adjusting for CapEx.  

The 2025 guidance is a factor weighing on the market. The company’s guidance for organic growth is decent, expecting industry-leading performance and a low-mid-single-digit growth pace. However, the forecast is tepid relative to the analysts' expectations, leading to a downshift in projections. With this in play, the market will likely have difficulty sustaining bullish traction, but a significant stock price downturn is unexpected due to the growth and capital return outlook. The capital return includes the dividend and share repurchases, which reduced the count by more than 1.5% in Q4. 

Analysts' Sentiment Is Skewed in Favor of Higher Share Prices 

Analysts moderated their price targets in the first few weeks of 2025 but remain steadfast in their consensus rating of Hold. The Hold rating has a bullish bias because 80% of the ratings are Hold or better, including a 33% rating at Buy. The consensus price target is down from the peak set in late 2024, and the recent revisions suggest a below-consensus price point is possible. Still, the consensus indicates a 10% upside, and the low estimates align with an existing price floor. That floor is at the low end of the previously mentioned trading range, near the $120 level. 

The price action in KMB shares is lackluster, indicating a decline likely in February. However, the market is close to its critical support levels and unlikely to break them. The likely scenario is a price move to near $120, followed by a rebound and continuation of the range. In this scenario, upward movement is possible and can gain momentum as business results improve.