Kimberly-Clark (KMB) is an established branded consumer staples business. The company operates in 175 countries and has a large product portfolio, explains dividend expert Ben Reynolds, editor of Sure Dividend.

Its Personal Care segment includes many of its flagship brands, such as Huggies, Pull-Ups, Kotex, Depend, and Poise. The Consumer Tissue segment includes Kleenex, Scott, Cottonelle, Viva, and more.

In late October, Kimberly-Clark reported (10/22/18) financial results for the third-quarter of fiscal 2018. Net sales of $4.6 billion decreased by 2% from the same period a year ago, but organic sales actually increased by 1%. Adjusted earnings-per-share of $1.71 increased by 7% year-over-year.

Kimberly-Clark’s earnings growth was driven by organic sales growth, cost savings, and share repurchases. The company generated cost savings of $145 million while also returning $520 million to shareholders through dividend payments and share repurchases last quarter.

Kimberly-Clark’s main competitive advantage is its strong brand portfolio. Strong brands provide the company with steady profits, even when the economy enters a downturn. This is why we expect Kimberly-Clark’s profits to hold up well if another recession occurs. The company sells products that are necessary for modern life, such as tissues, paper towels, toilet paper, and diapers.

The company is likely to see a certain level of product demand, even during economic downturns, which makes Kimberly-Clark an extraordinarily recession-resistant company. For example, it experienced only a minor 4.5% decline in earnings-per-share over the course of the 2007-2009 financial crisis and resumed healthy earnings growth in subsequent years.

One of the most compelling growth catalysts for Kimberly-Clark is expansion in the emerging markets such as China, which have large populations and high economic growth rates. For example, there are recent news  reports that China may end its two-child policy. If China ends its nearly four-decade long family planning policies, this would be highly positive for Kimberly-Clark’s diaper brands.

Kimberly-Clark will also generate earnings growth through price increases and cost cuts. The company intends to cut over $2 billion of costs through 2021. These measures will help Kimberly-Clark continue to generate earnings growth, even in an inflationary environment.

Kimberly-Clark is trading at a price-to-earnings ratio of 15.7 using 2018 earnings expectations of $6.70 per share. We believe fair value is a price-to-earnings ratio of 18.2, for a fair value price of $122 per share.

Valuation changes could add 3.0% to annual returns through 2023. Adding in 4% annual earnings growth and the 3.8% dividend yield, Kimberly-Clark stock could provide annualized returns of 10.8% over the next five years.

Subscribe to Ben Reynolds' Sure Dividend here…