Procter & Gamble or Kimberly-Clark? Why One Dividend Aristocrat Has the Edge

Investors looking for reliable dividends should consider the Dividend Aristocrats, a group of 57 stocks in the S&P 500 Index that have increased their dividends for at least 25 consecutive years. There are several consumer staples stocks on the list of Dividend Aristocrats, including Kimberly-Clark Corp. and Procter & Gamble Co. . The best consumer staples stocks have strong brands with powerful name recognition. Kimberly-Clark and P&G have the financial strength to invest in advertising and new product development, which has supported their growth over the years. They also operate in steady businesses. People always need their products, even during recessions. This helps these companies continue to raise their dividends each year, no matter how the economy is doing. With attractive dividend yields hovering around 3%, Kimberly-Clark and P&G are both dependable dividend stocks. However, the performance of P&G and Kimberly-Clark has diverged in recent quarters. It seems one of these Dividend Aristocrats has a meaningful advantage right now, making it the more attractive stock today. Diverging Performance Kimberly-Clark and P&G operate in the consumer products industry. They manufacture products that can be found in nearly every household in the United States. Kimberly-Clark has a number of well-known brands, such as Huggies, Pull-Ups, Kotex, Depend, Kleenex, Scott and Cottonelle. Kimberly-Clark also serves business customers through its K-C Professional operating segment. The company generates annual sales of more than $18 billion and the stock has a market capitalization of $42 billion. Meanwhile, P&G is the industry giant. It has a market cap of $265 billion and generates annual sales of more than $67 billion. P&G has a huge portfolio of brands. A few of its top sellers include Gillette, Tide, Charmin, Crest, Pampers, Febreze, Head & Shoulders, Bounty and Oral-B. The two companies have nearly identical business models, but their financial performance has diverged in recent periods. Procter & Gamble released strong results for its most recent fiscal quarter. Revenue of $17.4 billion rose 0.2% from the like quarter last year and beat analyst expectations by $280 million. Adjusted earnings per share (EPS) of $1.25 increased 13% excluding currency impacts, and also beat analyst expectations by four cents a share. Organic sales (which exclude currency fluctuations, acquisitions and divestitures) increased 4% for the period. Beauty products led the way with 8% organic sales growth, followed by Fabric & Home Care with 6% growth. Health Care segment organic sales increased 5%, while Baby, Feminine and Family Care sales increased 3%. Growth in these segments was partially offset by a 3% sales decline in Grooming products. Kimberly-Clark reported quarterly earnings on Jan. 23 and results were weak. Net sales declined 1% for the period, while organic revenue increased 3%. Kimberly-Clark's net sales and organic growth rates came in below P&G's for the most recent quarter. Kimberly-Clark's adjusted EPS inched higher by 1.9% last quarter, far below P&G's double-digit growth rate. The biggest reason for their diverging performance likely has to do with their product mix. Kimberly-Clark's relative exposure to paper products is hurting the company right now as it deals with input cost inflation. Last quarter, the company specifically noted higher cost inflation, particularly in pulp costs and other raw materials. Kimberly-Clark maintains a relatively pessimistic outlook going forward, as these cost pressures are not likely to ease anytime soon. Management guidance calls for full-year net sales to decline 1% to 2%. Organic sales growth is expected at 2%, while adjusted EPS is expected to decline fractionally for the full year. Compare that forecast with P&G's outlook, which is much more optimistic. P&G expects organic growth in the 2% to 4% range, along with adjusted EPS growth of 3% to 8% for the current fiscal year. Steady Growth, Even During Recessions To be a Dividend Aristocrat, a company must have raised its dividend for at least the last 25 consecutive years. In order to maintain such a long history of steady increases every year, a company must be able to successfully navigate economic downturns. Multiple recessions are likely to occur over any 25-year period. As a result, companies that operate in highly cyclical industries have difficulty making it to 25 years. Consumer staples stocks such as Kimberly-Clark and P&G have the ability to remain highly profitable, even during recessions. This allows them to continue increasing their dividends each year like clockwork. After all, everybody needs paper towels, toothpaste, laundry detergent and many of the products Kimberly-Clark and P&G sell. People need these items in good economies and bad, meaning the two companies see fairly stable demand even if the economy slips into recession. While consumers can cut back on a number of discretionary purchases during tough economic times, they cannot cut back on everyday household essentials. Kimberly-Clark and P&G both raised their dividends each year during the Great Recession of 2007-2009. They should continue to increase dividends even if a recession occurs in the U.S. at some point in the future as they have manageable payout ratios under 70%. One King to Rule Them All Kimberly-Clark and P&G have very similar business models and have similar dividend profiles as well. Both stocks offer dividend yields above the S&P 500 average, which stands at 1.9%. Indeed, Kimberly-Clark has a 3.3% yield, while P&G yields 2.8%. As a result, Kimberly-Clark is slightly more appealing for investors who are primarily interested in current yield. Also, both companies have long histories of steady dividend increases. Kimberly-Clark has increased its dividend for 47 consecutive years, while P&G recently hiked its dividend for the 63rd year in a row. From this perspective, P&G has a significantly longer history of annual dividend hikes. Indeed, P&G qualifies as a Dividend King, an exclusive list of fewer than 25 companies which each have raised their dividends for at least 50 consecutive years. P&G also has an advantage because it may have stronger dividend growth potential than Kimberly-Clark. Because of its improved financial results, P&G recently raised its dividend by 4%. For its part, Kimberly-Clark's most recent dividend increase was a more modest 3% hike. Investors should expect P&G to continue raising its dividend at a higher rate than Kimberly-Clark as P&G's growth heats up while Kimberly-Clark's stalls out. Final Thoughts Income investors, particularly those with a low tolerance for risk and volatility, should see a lot to like about Kimberly-Clark and Procter & Gamble. Both companies have popular brands and should continue to raise their dividends each year. Kimberly-Clark stock is slightly more appealing for income investors due to its modestly higher yield. P&G's yield has dipped below 3% in recent weeks due to its rising share price, which is hardly a bad thing. P&G is the more attractive choice for investors with an eye for growth in addition to income.

Procter & Gamble or Kimberly-Clark? Why One Dividend Aristocrat Has the Edge

The advantage goes to P&G as the larger of the two behemoths in consumer staples has been posting stronger results of late.

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