Kimberly-Clark (NYSE:KMB) Is Paying Out A Larger Dividend Than Last Year

Kimberly-Clark Corporation (NYSE:KMB) will increase its dividend from last year's comparable payment on the 5th of July to $1.18. This makes the dividend yield 3.5%, which is above the industry average.

See our latest analysis for Kimberly-Clark

Kimberly-Clark's Earnings Easily Cover The Distributions

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before this announcement, Kimberly-Clark was paying out 80% of earnings, but a comparatively small 69% of free cash flows. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.

Over the next year, EPS is forecast to expand by 27.2%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 65% which would be quite comfortable going to take the dividend forward.

Kimberly-Clark Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2013, the dividend has gone from $2.96 total annually to $4.72. This works out to be a compound annual growth rate (CAGR) of approximately 4.8% a year over that time. Dividends have grown relatively slowly, which is not great, but some investors may value the relative consistency of the dividend.

Dividend Growth May Be Hard To Achieve

Investors could be attracted to the stock based on the quality of its payment history. Earnings per share has been crawling upwards at 2.7% per year. There are exceptions, but limited earnings growth and a high payout ratio can signal that a company has reached maturity. When a company prefers to pay out cash to its shareholders instead of reinvesting it, this can often say a lot about that company's dividend prospects.

Our Thoughts On Kimberly-Clark's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Kimberly-Clark's payments are rock solid. The company has been bring in plenty of cash to cover the dividend, but we don't necessarily think that makes it a great dividend stock. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 1 warning sign for Kimberly-Clark that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.