Kimberly-Clark Corporation (NYSE:KMB) will increase its dividend on the 4th of April to US$1.16. This will take the dividend yield to an attractive 3.5%, providing a nice boost to shareholder returns.

View our latest analysis for Kimberly-Clark

Kimberly-Clark's Dividend Is Well Covered By Earnings

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before making this announcement, Kimberly-Clark's was paying out quite a large proportion of earnings and 91% of free cash flows. This indicates that the company is more focused on returning cash to shareholders than growing the business, but we don't think that there are necessarily signs that the dividend might be unsustainable.

EPS is set to grow by 5.4% over the next year. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 84%. This is definitely on the higher side, but we wouldn't necessarily say this is unsustainable.

Kimberly-Clark Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. The first annual payment during the last 10 years was US$2.80 in 2012, and the most recent fiscal year payment was US$4.64. This means that it has been growing its distributions at 5.2% per annum over that time. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.

The Dividend's Growth Prospects Are Limited

Investors could be attracted to the stock based on the quality of its payment history. Unfortunately things aren't as good as they seem. It's not great to see that Kimberly-Clark's earnings per share has fallen at approximately 2.2% per year over the past five years. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.

Our Thoughts On Kimberly-Clark's Dividend

Overall, we always like to see the dividend being raised, but we don't think Kimberly-Clark will make a great income stock. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. This company is not in the top tier of income providing stocks.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 1 warning sign for Kimberly-Clark that investors should take into consideration. Is Kimberly-Clark not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.