Read This Before Considering Kimberly-Clark Corporation (NYSE:KMB) For Its Upcoming US$1.14 Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Kimberly-Clark Corporation (NYSE:KMB) is about to trade ex-dividend in the next four days. Investors can purchase shares before the 4th of March in order to be eligible for this dividend, which will be paid on the 5th of April.

Kimberly-Clark's upcoming dividend is US$1.14 a share, following on from the last 12 months, when the company distributed a total of US$4.56 per share to shareholders. Last year's total dividend payments show that Kimberly-Clark has a trailing yield of 3.6% on the current share price of $128.33. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Kimberly-Clark can afford its dividend, and if the dividend could grow.

View our latest analysis for Kimberly-Clark

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Kimberly-Clark is paying out an acceptable 62% of its profit, a common payout level among most companies. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Dividends consumed 58% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

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.

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. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. For this reason, we're glad to see Kimberly-Clark's earnings per share have risen 20% per annum over the last five years. Kimberly-Clark has an average payout ratio which suggests a balance between growing earnings and rewarding shareholders. This is a reasonable combination that could hint at some further dividend increases in the future.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, Kimberly-Clark has increased its dividend at approximately 5.6% a year on average. It's good to see both earnings and the dividend have improved - although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.

The Bottom Line

Is Kimberly-Clark an attractive dividend stock, or better left on the shelf? Higher earnings per share generally lead to higher dividends from dividend-paying stocks over the long run. That's why we're glad to see Kimberly-Clark's earnings per share growing, although as we saw, the company is paying out more than half of its earnings and cashflow - 62% and 58% respectively. To summarise, Kimberly-Clark looks okay on this analysis, although it doesn't appear a stand-out opportunity.

In light of that, while Kimberly-Clark has an appealing dividend, it's worth knowing the risks involved with this stock. To help with this, we've discovered 1 warning sign for Kimberly-Clark that you should be aware of before investing in their shares.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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.
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