The highs in the stock market have sparked both elation and concern. Although investors love to see their investments growing in value, indicators like the Shiller P/E ratio are flirting with all-time highs. This sparks concerns that the market is gearing up for a bear market or possibly even a crash.
Ultimately, we do not know whether a market crash is coming, but should one occur, this consumer staples stock is likely to keep you safer than most.
Image source: Getty Images.
The ultimate market crash stock
The company investors likely want to own in this situation is Kimberly-Clark (KMB +1.35%). During a crash, investors tend to seek companies selling consumer staples that customers buy regardless of the economy’s performance. Thus, even if market sentiment turns heavily negative, the company’s business lines should mitigate any potential stock sell-off.
Kimberly-Clark certainly fits that description, as investors may know it best as the owner of the Kleenex tissue brand. However, they should note that it also owns brands such as Huggies, Depend, Cottonelle, and Scott.
Additionally, the company announced in November that it would buy Kenvue, the former consumer health division of Johnson & Johnson. This will place brands like Neutrogena, Tylenol, and Listerine under its umbrella, further boosting its ability to stay strong in a downturn.
Admittedly, investors have turned negative on Kimberly-Clark stock in recent months due to the $48.7 billion cost of the upcoming merger. The stock is off by more than 30% from its high last June, likely in part because financing the Kenvue purchase will almost certainly require Kimberly-Clark to dilute shareholders by issuing more shares.
Today’s Change
(1.35%) $1.29
Current Price
$96.94
Key Data Points
Market Cap
$32B
Day’s Range
$94.67 – $97.50
52wk Range
$92.42 – $144.31
Volume
97K
Avg Vol
5M
Gross Margin
35.93%
Dividend Yield
5.29%
Nonetheless, that probably also means shareholders have already taken much of the hit. The stock’s P/E ratio is now 15, well below the five-year average of 22. Also, with a forward P/E ratio of 13, the downside of the stock is likely limited, even in a sell-off.
Furthermore, that stock price drop has taken the dividend yield of its $5.12 per share annual payout to 5.2%, far above the S&P 500‘s 1.1% average, and its 54-year streak of payout hikes makes it a Dividend King.
This dividend cost Kimberly-Clark $1.67 billion over the trailing 12 months and claimed most of the $1.84 billion in free cash flow over that time. Since the company can technically afford the dividend, it is highly unlikely to alienate its shareholders by walking away from its Dividend King status, helping to keep income investors safe.
Owning Kimberly-Clark pays in just about any market
If one fears a market crash, Kimberly-Clark is arguably the best dividend stock to own. Its products are likely to continue selling no matter what happens with the economy. Moreover, even if the stock price stays low, investors can earn a 5.2% cash yield while waiting for a stock price recovery and more dividend increases.
Admittedly, the size of its Kenvue merger and the share dilution required to finance the deal may spook some investors. Nonetheless, much of the drop in the stock price has already occurred, and the low P/E ratio reduces the odds of significantly more downside.
Thus, if a market crash is truly coming, buying this dirt cheap Dividend King stock and collecting its generous dividend is probably a wise strategy.
