Dear Mr. Berko:
I’ve been looking at buying Kimberly-Clark because our family consumes so many of their products. And when we were overseas, we saw their products in almost every country. I know about their excellent revenues and earnings, and I like the dividend, which yields 4.2 percent. I would like your opinion, and if you approve, I would buy 250 shares in our joint account.
E.P., Springfield, Ill.
Dear E.P.:
I used to own 200 shares of Kimberly-Clark (KMB – $66), which has increased its revenues, earnings and dividends every year since l972. I bought the stock in 1994 at $63. Since that time KMB’s, revenues grew from $9.5 billion to $20.2 billion today. That’s an average annual growth rate of 5.5 percent, which is certainly a lot better than the economy.
While revenues have doubled since 1994, earnings tripled from $1.67 per share to $5.10, which is an average annual growth of 7.4 percent, a compelling record by an excellent management team.
And while KMB’s dividend has risen every year since 1974, it also increased annually since I bought the stock, from 85 cents to $2.64 per share. That’s also an average annual revenue growth of 7.4 percent, an envious record by any standard. Neither Bernie Madoff nor R. Allen Stanford have done that well, but they certainly attracted a lot more money. Could there be a lesson here?
Betweenwhiles cash flow grew threefold, book value nearly doubled, and return on capital is a nifty 20.7 percent. In fact, the revenues, earnings and dividends of KMB seem impervious to recession, inflation and the economic cycle.
KMB has been in business since 1859, employs 56,000 people in 35 countries and in the past 30 years has never laid off an employee. Management has been using its impressive cash flow to repurchase a million shares of stock this year and may repurchase even more shares in 2011. KMB doesn’t have a pollution problem, is a respected citizen and a good neighbor in every community in which it does business, while its reputation and product quality enjoy impressive recognition and admiration. KMB’s financial strength is rated A plus-plus by Value Line, and its price stability and earnings predictability are rated 100. The shares are on the “BUY” list of almost every New York Stock Exchange brokerage, and tens of millions of its shares are owned by BlackRock, Wellington, JPMorgan, Vanguard, T. Rowe Price and American Century, plus hosts of other equity funds.
KMB makes Kotex and Kleenex, Cottonelle, Huggies, Pull-ups, Viva and Diva, plus myriad disposable health care products including gowns, scrubs, gloves and masks. But I just sold my 200 shares at $63, which is what I paid in 1994. In other words, management’s nearly nonpareil accomplishment in the last 16 record-setting years has done zip, nada and nothing to improve the stock price. So now I cannot recommend that anyone buy the stock.
When tech stocks with unpronounceable names and zero revenues can rise 1,000 percent, when the shares of companies with no earnings can quadruple in six months, when companies near bankruptcy can double their stock value in a week and when startup IPOs can rise 40 percent in value in just one day, there’s something wrong here ... real wrong. How is it possible that a Blue Chip company with an exemplary record of revenues, earnings and dividends can’t lift its stock price off the ground? If significant performance in this industry’s most important metrics can’t budge a stock, then what should we look for in selecting quality issues for long-term growth? What am I missing here?
If you are adamant about owning KMB, the only advice I will give you is wait until the market crashes and buy it at $44, certainly not at today’s price, where it may languish for another 16 years.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at mjberko@yahoo.com. Visit Creators Syndicate Web site at www.creators.com.
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