High-Yield Dividend King Kimberly-Clark Is On Sale Kimberly-Clark (NYSE: KMB) didn't have a good or a bad quarter, just one that highlights issues that are building within the market. The number one is inflation.

Kimberly-Clark Says Toilet Paper Is Getting More Expensive

Kimberly-Clark (NYSE: KMB) didn't have a good or a bad quarter, just one that highlights issues that are building within the market. The number one is inflation. The company blames inflationary pressures it was slow to combat for weak earnings and has vowed to fight against the evil of margin shrinkage with higher prices. What this means, and will mean in future quarters, is that a fair portion of revenue and earnings growth is due to higher prices and not organic growth. At some point, the scales will tip and higher prices will curb sales but we aren't there yet.

"... Our earnings were negatively impacted by significant inflation and supply chain disruptions that increased our costs beyond what we anticipated. We are taking further action, including additional pricing and enhanced cost management, to mitigate these headwinds as it is becoming clear they are not likely to be resolved quickly," said CEO Mike Hsu.

The good news for Kimberly-Clark is that its tissue paper products are among the most must-have of all the consumer staples making it a safer-than-average play for these uncertain times. If we add in the facts the stock trades at a discount to the broad market, yields nearly 3.5%, and has been increasing the dividend for 50 years and you may understand why we view today's sell-off as an attractive time to buy.

Nothing To Brag About In Kimberly-Clark's Numbers

Kimberly-Clark had a quarter despite the mounting headwinds plaguing the market but that is about the best we can say about it. The $5.01 billion in net revenue is up 7.1% from last year but there are so many factors impacting the growth that are not related to volume the numbers don't mean what it should.

On an organic basis, the company grew about 4% to beat the Marketbeat.com consensus but that is due to a 3% increase in selling prices and a 1% tailwind from mix, not volume. As for the rest of the 7.1% in growth, the company posted 200 basis points of growth from acquisition and another 100 from FX tailwinds. Nice to see but, once again, not really much to brag about. On a segment basis, a 14% increase in Personal Care products and 13% increase in K-C Professional was offset by a 5% decline in Consumer Tissue.

Moving down to the margins, there is even less to get excited about. The company reported a contraction in the operating margin that more than offset the revenue gains and leave profits down slightly on a YOY basis. This put GAAP earnings at $1.39 or a penny more than last year but $0.16 short of the consensus and adjusted earnings at $1.62 or a dime less than last year and $0.03 less than expected.

Kimberly-Clark Is Safely Growing The Dividend

Kimberly-Clark is safely growing its dividend and paying a high 3.45% yield but we think the days of aggressive increases are over. The revenue and earnings are enough to cover the payout and sustain growth but, at 70%, the payout ratio is sufficiently high to preclude a large increase especially with margin pressure the concern that it is. We don't expect dividend hikes to cease, just to slow. If the company can overcome the rot of inflation and widen margins a larger increase could come back on the table.

The Technical Outlook: Kimberly-Clark, They're Buying The Dip

Shares of Kimberly-Clark shed more than 7% in the wake of the Q3 earnings report but appear to have stumbled into a buying opportunity. Price action is confirming support at the $128 level and may continue higher in the near term. The next target for resistance is at the top of the price gap near $131 and may be strong. If price action can get above that level a move higher is possible but resistance will remain at the 30-day moving average. The best-case scenario, in our opinion, is that price action will trend sideways near these levels until a clearer picture of the future can be visualized.