Read This Before Considering Kimberly-Clark Corporation (NASDAQ:KMB) For Its Upcoming US$1.26 Dividend

Kimberly-Clark Corporation (NASDAQ:KMB) stock is about to trade ex-dividend in 4 days. The ex-dividend date is usually set to be one business day before the record date, which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Meaning, you will need to purchase Kimberly-Clark's shares before the 5th of September to receive the dividend, which will be paid on the 2nd of October.

The company's next dividend payment will be US$1.26 per share. Last year, in total, the company distributed US$5.04 to shareholders. Based on the last year's worth of payments, Kimberly-Clark stock has a trailing yield of around 3.9% on the current share price of US$129.14. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to check whether the dividend payments are covered, and if earnings are growing.

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Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Kimberly-Clark paid out more than half (67%) of its earnings last year, which is a regular payout ratio for most companies. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Over the last year, it paid out more than three-quarters (78%) of its free cash flow generated, which is fairly high and may be starting to limit reinvestment in the business.

It's positive to see that Kimberly-Clark's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

View our latest analysis for Kimberly-Clark

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. This is why it's a relief to see Kimberly-Clark earnings per share are up 3.3% per annum over the last five years. A high payout ratio of 67% generally happens when a company can't find better uses for the cash. Combined with slim earnings growth in the past few years, Kimberly-Clark could be signalling that its future growth prospects are thin.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Kimberly-Clark has delivered an average of 4.1% per year annual increase in its dividend, based on the past 10 years of dividend payments. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

Final Takeaway

Should investors buy Kimberly-Clark for the upcoming dividend? Earnings per share have been growing modestly and Kimberly-Clark paid out a bit over half of its earnings and free cash flow last year. To summarise, Kimberly-Clark looks okay on this analysis, although it doesn't appear a stand-out opportunity.

However if you're still interested in Kimberly-Clark as a potential investment, you should definitely consider some of the risks involved with Kimberly-Clark. For example - Kimberly-Clark has 2 warning signs we think you should be aware of.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.