Kimberly-Clark (KMB ) traces its beginnings back to 1872. Four young businessmen, John A. Kimberly, Havilah Babcock, Charles B. Clark, and Frank C. Shattuck, come up with $30,000 of start-up capital to form Kimberly, Clark, and Co.

As they say, the rest is history.

Today, Kimberly-Clark is a global consumer products giant that operates in 175 countries. It sells products that are used each and every day in millions of households across the world.

Kimberly-Clark has paid a dividend to shareholders for many decades without interruption. It has paid a dividend for 82 years. It has raised its dividend for 44 years in a row.

Kimberly-Clark is a Dividend Aristocrat. You can see the entire list of Dividend Aristocrats here.

Keep reading this article to learn more about the investment prospects of Kimberly-Clark.

Business Overview

Kimberly-Clark is organized into three reporting segments, which are as follows:

• Personal Care (50% of total sales)
• Consumer Tissue (33% of total sales)
• K-C Professional (17% of total sales)

Personal Care offer products such as disposable diapers, training and youth pants, swim pants, baby wipes, feminine and incontinence care products, and more. Kimberly-Clark’s key brands include Huggies, Pull-Ups, Little Swimmers, GoodNites, DryNites, Kotex, U by Kotex, Intimus, Depend, Plenitud, Poise, and others.

The Consumer Tissue segment manufactures products such as facial and bathroom tissue, paper towels, and napkins. Major brands include Kleenex, Scott, Cottonelle, Viva, Andrex, Scottex, and Neve.

Lastly, the K-C Professional business sells products like wipers, tissue, towels, apparel, soaps, and sanitizers. Brands including Kleenex, Scott, WypAll, Kimtech and Jackson Safety, and are sold to workplaces.

Business conditions overall are sound, but the company faces challenges. The U.S. is a slow-growth market, as economic growth remains constrained.

And, Kimberly-Clark’s overseas growth is being negatively impacted by the strong U.S. dollar.

Last year, net sales fell 6% to $18.6 billion. But the decline was entirely due to currency fluctuations. Changes in exchange rates reduced net sales more than 10% for the year. Organic sales, which excludes exchange rates, rose 5% in 2015.

This is an important distinction. Currency is a purely financial issue. The fact that organic revenue is increasing is a positive indication that underlying demand for Kimberly-Clark’s products remains strong.

Growth Prospects

One of Kimberly-Clark’s most attractive growth catalysts moving forward is an entry into new geographic regions.

Kimberly-Clark’s developing and emerging market operations now represent 30% of total sales.

(Click on image to enlarge)

Source: 2016 Barclays Global Consumer Staples Conference, page 15

In particular, China, Eastern Europe, and Latin America are key focal points for Kimberly-Clark moving forward. These regions represent half of the company’s emerging market operations. From 2011-2015, these markets grew at a 15% compound annual rate.

These markets are enjoying rapid economic growth and expanding middle classes. This sets up a strong tailwind for consumer products companies such as Kimberly-Clark up ahead.

Another growth catalyst is margin expansion. Kimberly-Clark has employed a cost-savings program across the company. It calls this program ‘FORCE’, which stands for Focus-On-Reducing-Costs Everywhere.

(Click on image to enlarge)

Source: 2016 Barclays Global Consumer Staples Conference, page 20

As you can see, this program has been very successful at increasing profit margins for the company over the last several years.

Kimberly-Clark’s high brands, along with rising profit margins, fuels its excellent returns on capital.

(Click on image to enlarge)

Source: 2016 Barclays Global Consumer Staples Conference, page 23

Its consistently high return on invested capital allows the company to invest in future growth and reward shareholders with high cash returns.

Competitive Advantages & Recession Performance

Kimberly-Clark’s competitive advantage comes primarily from its well-known brands. The company supports its brands with advertising and research and development.

It retains its brand reputation with consumers by aggressive advertising of its products. Kimberly-Clark’s advertising expenses over the past three years are as follows:

• $710 million of advertising expense in 2015
• $767 million of advertising expense in 2014
• $769 million of advertising expense in 2013

The company also invests significant resources into research and development:

• $324 million of R&D expense in 2015
• $368 million of R&D expense in 2014
• $333 million of R&D expense in 2013

With a very positive image and a strong brand reputation, Kimberly-Clark can retain pricing power. That is a valuable competitive advantage. It allows the company to charge high prices for its products. Consumers will pay higher prices because of the high quality of its product line.

This stability allows Kimberly-Clark to perform well through all economic cycles. People still need tissues, paper towels, and diapers, even during recessions.

Kimberly-Clark performed well through the Great recession of 2007-2009.Its earnings-per-share through the Great Recession are shown below:

• 2007 earnings-per-share of $4.25
• 2008 earnings-per-share of $4.06
• 2009 earnings-per-share of $4.52
• 2010 earnings-per-share of $4.45

Valuation & Expected Total Return

Kimberly-Clark stock trades for a price-to-earnings ratio of 20. It is more attractively valued than the broader market. The S&P 500 Index trades for a price-to-earnings ratio of 25.

Kimberly-Clark stock is valued right on par with its historical average. For example, since 2000 the stock has traded for an average price-to-earnings ratio of 20.

It seems Kimberly-Clark is fairly valued, or perhaps slightly undervalued. The stock may see its future valuation multiple expand, but it is not a given in a rising interest rate climate.

As a result, future shareholder returns will mostly be comprised of earnings-per-share growth and dividends. Kimberly-Clark’s expected returns could be summarized as follows:

• 4%-6% revenue growth
• 1% margin expansion
• 1% share repurchases
• ~3% dividend yield

A key component of Kimberly-Clark’s shareholder value creation is cash returns. Kimberly-Clark returns lots of cash to investors through dividends and share repurchases.

Kimberly-Clark’s share buybacks have greatly diminished its shares outstanding, which boosts earnings-per-share growth.

(Click on image to enlarge)

Source: 2016 Barclays Global Consumer Staples Conference, page 25

Therefore, it is reasonable for investors to expect 9%-11% total annual returnsmoving forward.

Final Thoughts

Kimberly-Clark has experienced a dip in its share price recently. The good news is that this has elevated Kimberly-Clark’s dividend yield and brought its valuation down to more normal levels.

Kimberly-Clark stock offers a 3.2% dividend yield, which is above the market average. In addition, it has increased its dividend for many years in a row.

That makes the stock a strong holding for dividend growth investors seeking stability from their equity investments.Kimberly-Clark ranks in the top 25% of stocks using The 8 Rules of Dividend Investing.The recent share price decline has helped the stock to rank higher.If the share price continues to fall, Kimberly-Clark will soon enter long-term buying territory.