Kimberly Clark is Down 20% From Its 52-Week High. Is the Dip Worth Buying?
Key Points
Kimberly-Clark produces paper products that are, effectively, life necessities.
The company is planning to buy Kenvue, which makes over-the-counter healthcare items.
Kimberly Clark (NASDAQ: KMB) has increased its dividend annually for over five decades, making it a Dividend King. That's a huge achievement. It also offers an attractive 5% dividend yield, with its stock price having fallen more than 20% from its 52-week high as of this writing. Should you jump on the opportunity to buy it, or are you better off staying on the sidelines? The answer may depend on your tolerance for risk.
What does Kimberly Clark do and what does it want to do?
Right now, Kimberly Clark is largely a paper products company, making things like toilet paper, diapers, and feminine hygiene products. These are necessities, so the business has a strong foundation. That said, it competes directly with Procter & Gamble (NYSE: PG), one of the world's largest consumer staples companies. This comparison is important in two ways.
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First, Procter & Gamble has notably higher gross profit margins and materially less leverage. You could easily argue that P&G is better run business, noting that it, too, is a Dividend King. But this comparison isn't completely fair because P&G makes paper products and a broad range of other consumer items, from soap to cough medicine. Which brings up point two: Kimberly Clark is in the middle of buying Kenvue (NYSE: KVUE), a move that will make it look more like P&G.
From a business perspective, this is likely a good move. However, from an investor's perspective, a highly leveraged consumer-staples company is looking to acquire another business. It will pay cash toward part of the purchase, adding additional debt to the balance sheet. And then there is the integration risk that comes along with any big acquisition. There is material risk involved here, even if the proposed deal makes business sense.
Neither Kimberly Clark nor Kenvue are doing great right now
The last piece of the puzzle is perhaps the most troubling. Kimberly Clark lowered its full-year guidance when it reported second-quarter 2026 earnings. Essentially, the business isn't doing as well as management had hoped.
Kenvue, meanwhile, proudly announced that the second quarter marked its third consecutive quarter of organic sales growth. That's great news, but it also highlights that the company was struggling with weak performance before that point. In other words, Kenvue is attempting to turn its business around just as it is about to be acquired by Kimberly Clark, a company that isn't performing at the top of its game right now. That's not a great setup.
It is highly unlikely that Kimberly Clark will go out of business. But there are better-run consumer staples businesses you can buy. And while Kimberly Clark's lofty yield is attractive, its 85% dividend payout ratio is rather high, as it pursues a transformative acquisition while dealing with elevated leverage ratios. Only the most aggressive dividend investors should probably consider it right now.
Reuben Gregg Brewer has positions in Procter & Gamble. The Motley Fool recommends Kenvue. The Motley Fool has a disclosure policy.