January Stock Purchase #4

This is the last of my 4 weekly stock purchases in January and I decided to split my automatic purchase among two companies this time.

Kimberly Clark

Founded in 1872, Kimberly Clark (KMB) is a global manufacturer of tissue, personal care and health care products with a $42B market capitalization. It owns some strong brands such as Kleenex, Scott, Huggies and Kotex. It’s organized into three global segments – Personal Care, Consumer Tissue and K-C Professional. In 2014 it spun its former Health Care division into the new company Halyard Health (HYH).

KMB has increased its dividend every year for the last 43 years, currently giving $0.84 a share for a yield of 3.0%. It’s likewise a very stable and consistent dividend growth stock, with dividend increases arriving in March each year. Payout ratio is on a par with last year at 59%, down from its all-time high of 70% in 2011. Annualized dividend growth over the last 5 years is 7%.

Its P/E of 19 is slightly higher than the S&P’s average of 18.6. Historically over the last 10 years, its P/E has been equal to or higher than the S&P average except for 2009 & 2010. Analysts project an EPS growth over the next 5 years of 7%.

Free Cash Flow has been positive for each of the last ten years with a low of $1.3B in FY2011 and a high of $2.4B in FY2004. TTM Free Cash Flow is $2.2B, higher than 2013’s $2.1B.

My KMB shares currently contribute a total of 1.7% of my forward dividend income.

Recent News

KMB’s 2014 annual results were published last week. Management expect a dividend increase of around 5% this year at a similar level to their projected EPS growth of 2-5%. The 2014 results were impacted by Venezuela’s foreign currency crisis which caused a $460 million charge. Expectations in 2015 are net sales decrease of 3-5% and a net operating profit increase of 1 to 4% including $300M in savings as part of an ongoing cost reduction program.

General Mills

Founded in 1866, General Mills (GIS) is a producer of packaged foods and one of the largest producers of breakfast cereals in the US with a market cap of $32B. It holds many famous brands including Cheerios, Wheaties, Fiber One, Green Giant, Progresso, Yoplait and Haagen-Dazs.

GIS has increased its dividend for the last 11 years and currently pays $0.41 for a yield of 3%. It has been inconsistent in its increases; sometimes raising them in January, typically in July and most recently in April. Its current payout ratio of 67% is the highest over the last 10 years, a range which historically has fallen between 40 and 55%. The last 5 years’ annualized dividend growth from 2009 to 2014 is 12.3%.

Its P/E of 21 is higher than the S&P 500 average of 18.6. Over the last ten years, the P/E value has generally been equal or higher than the S&P average; exceptions being 2004/5 and 2009. Its projected 5% EPS growth is 6.2%.

In the last ten years since 2005, Free Cash Flow has been positive each year with a low of $0.8B in FY2011 and a high of $2.3B in FY2013. TTM cash flow is $1.7B, down from FY2014’s cash flow of $1.88B.

My GIS shares currently contribute a total of 1.4% of my forward dividend income.

Recent News

General Mills’ Q2 FY15 quarterly results posted last month showed a year-on-year reduction in net sales of 3% and a 10% reduction in operating profit. Management expect the second half of FY15 to be better, and its acquisition of Annie’s Homegrown natural foods products last year should help offset trends against packaged cereals in favor of healthy alternatives. The company expects H2 earnings per share to increase at a double digit rate and a single-digit increase in operating profit.

January Stock Purchase

So my purchase this week was

2.7475 shares of GIS @ $54.59 ($150)
1.36 shares of KMB @ $110.05 ($150)

With an average yield of 3%, these Sharebuilder purchases add $9 to my projected annual dividend income.

 

Quote of the day

We’re generally overconfident in our opinions and our impressions and judgments.

0 thoughts on “January Stock Purchase #4”

  1. I’m a big fan of Kimberly Clark, so I naturally think you made a great purchase there. I’m not such a fan of food producers, just because much of what they do is not really ‘food’ in my opinion. Yes, I eat a lot of salad.

    Love to see these updates ticking along! We are probably going to buy into an IPO of John Laing instead of buying our usual dividend share purchase for February, but I might just sneak a little purchase in on the 23rd, if I can.

    Cheers

    1. Hi M,

      Good points – there’s definitely a trend away from packaged foods towards more natural options. That said, I think my yearly consumption of General Mills’ Fiber One cereal added $0.01 to their EPS last year alone. I know it’s a different company but one of the things I miss the most from the UK here are Mueller’s Fruit Corners…

      I’ve never been part of an IPO – there’s too much guesswork with the initial price, so I stay clear of those. But if you plan to hold the stock long-term which I think you do, then all’s good. I just read that John Laing has announced a progressive dividend policy after the IPO so that’s a plus!

      Best wishes,
      -DL

  2. DL,

    How do you feel about the renewed rumours of Nestlé preparing to acquire (a large stake in) GIS? It does make sense that they take the opportunity of the strengthened Swiss Franc and go on a shopping spree, so I was wondering if that any impact on your decision to buy GIS.

    Cheers,
    NMW

    1. Hi NMW,

      I’ve not seen any recent rumors to be honest, so no, it didn’t factor into my decision. I know it’s been an on-going topic for the last 10(?) years or so and the companies work closely together on a joint-venture. The current CHF exchange rate to US$ looks to be at mid-2014 levels, right now so I don’t know a lot has really changed there.

      That said, Nestle’s stated direction is “Nutrition, Wellness and Health”…I’m not sure that General Mills is a great fit on all three values by that definition. But who knows what’s being discussed in the boardrooms!

      Best wishes,
      -DL

    1. Hi DGJ,

      I’ve been trying to build up dividends from the consumer defensive sector as part of my new portfolio weighting which I should really write about come to think of it.

      I like your purchases last week – I’ve been thinking about JNJ for next week too.

      Best wishes,
      -DL

  3. Both of those companies have been in my portfolio for many, many years and I plan to keep them for the foreseeable future. While I like both purchases I’m not sure I would have bought at current levels. Seems a bit expensive for my taste and there is still uncertainty about earnings going forward in a strong dollar environment. Still, as I said, I do like both picks and the current yield doesn’t hurt either. Thanks for sharing.

    1. Hi DivHut,

      Yes I agree they’re not a bargain but I don’t have a lot of control over the actual purchase price and I tend to think of these small investments similar to an automatic DRIP purchase. I’m planning to hold onto them for a long time too so we’ll see what the future brings.

      Always appreciate your insights, thank you!

      Best wishes,
      -DL

    1. Hi DFG,

      Good points – I think I only realized recently that Nescafe was owned by Nestle as I drink a lot of coffee. It’s funny how owning stocks makes you look at products differently!

      Best wishes,
      -DL

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