An Overlooked Dividend King With a 54-Year Winning Streak Worth Buying Now

A Dividend King is a company that has increased its dividend for at least 50 years in a row. There are currently only 57 that can wear this crown.

One of them is Kimberly-Clark (NASDAQ: KMB), the venerable company that makes tissues, paper towels, diapers, and other paper-based family-care products. It has increased its dividend for 54 straight years, making its stock a Dividend King. But it also pays out one of the highest yields among Dividend Kings -- 4.7% right now. The combination makes it one of the best, most reliable dividend stocks you can buy.

But the stock is not just a buy for its royal dividend -- it's also positioned to deliver some solid returns. Here's why.

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A strategic shift toward higher-margin products

Kimberly-Clark stock is up about 11% year to date (with dividends reinvested), but its total returns are down about 10% over the past 12 months. Its long-term returns aren't great either, as it averaged a drop of 1% over the past five years and a total rise of only 1% over the past decade.

Its main utility for investors has been to provide excellent dividend income, and some downside protection when markets go south. But some recent developments could position the company to generate some decent returns.

Earlier this month, Kimberly-Clark struck a deal with pulp supplier Suzano (NYSE: SUZ) to form a new paper products company, Arbex. This benefits Kimberly-Clark by offloading its lower-margin paper-towel and tissue business, allowing it to focus on its higher-margin personal-care products. Kimberly-Clark also has a licensing agreement with Arbex to license its paper brands, so that will generate some licensing royalties.

A greater focus on absorbing its Kenvue acquisition

More importantly, it frees up resources for Kimberly-Clark to integrate its pending acquisition of Kenvue (NYSE: KVUE).

Kenvue, which makes skincare products like Aveeno and consumer health products like Band-Aid, Tylenol, and Listerine (to name just a few), spun off from Johnson & Johnson in 2023. Kimberly-Clark sees it as a complementary fit, creating a global health and wellness leader, and expects the combination to maximize each company's strengths and accelerate growth.

Kimberly-Clark anticipates approximately $1.9 billion in cost synergies and roughly $500 million in profit from revenue synergies, within three to four years of the deal closing. It also expects to spend about $2.5 billion to realize these benefits in the first two years.

Long live the Dividend King

Analysts are generally bullish on the acquisition, with several raising their price targets for the stock in recent weeks. They have a median price target of $113 per share, suggesting 5% upside. Shares are also cheap, trading at 14 times earnings.

I think Kimberly-Clark is a buy for its dividend alone. But investors may also see the added benefit of solid long-term returns following the major shift from this 154-year-old company.

Dave Kovaleski has no position in any of the stocks mentioned. The Motley Fool recommends Johnson & Johnson and Kenvue. The Motley Fool has a disclosure policy.