Forget Kimberly-Clark: Procter & Gamble Is the Better Dividend Stock

They each sell branded staple products like diapers and tissue paper to consumers around the world. But that's about where the similarities end between Procter & Gamble (NYSE:PG) and Kimberly Clark (NYSE:KMB). The companies have posted dramatically different operating results in the last year, in fact, which put P&G in a stronger, and improving, market position while its smaller rival still struggles with its rebound plan.

Those dynamics suggest income investors would be better off buying Procter & Gamble today even though the stock's yield is lower. Let's take a closer look at this stock match-up.

P&G vs Kimberly Clark stocks

Metric

P&G

Kimberly Clark

Market cap	$247 billion	$40 billion
Sales growth	2%	1%
Operating profit margin	22%	17%
Dividend yield	2.9%	3.6%
P/E ratio	29	24
52-week performance	24%	3%

Sales growth excludes acquisitions and divestments and is on a constant-currency basis for the past complete fiscal year. Data sources: Company financial filings and S&P Global Market Intelligence.

Sales and profit momentum

The past few quarterly reports have painted starkly different pictures for these two businesses. Procter & Gamble posted a market-thumping 4% organic sales increase over the last six months, while Kimberly Clark's growth has been closer to 2%. P&G is finding success in areas like beauty and fabric care, which is offsetting a continued slump in its Gillette shaving franchise. Kimberly Clark, on the other hand, has struggled with falling sales volumes in the core U.S. market. P&G's sales footprint isn't as heavily tilted toward that one geography, and that global posture is just another reason the consumer products giant is outperforming right now.

Image source: Getty Images.

There's even more daylight between the two companies when it comes to profits. Both competitors are trying to strike a balance between market share and the need to raise prices as commodity costs increase. P&G is faring much better at this challenge. Last quarter's 4% organic sales boost was powered by a healthy mix of rising volumes and improving prices. Kimberly Clark's volume was flat over the past year, and its 2% sales uptick in the past six months came entirely from increased prices.

Finances and outlook

P&G is in a stronger financial position, too. Operating profit margin has inched up toward 22% of sales in the last year, while Kimberly Clark's comparable metric declined to 17% from 18.4%. Their outlooks are starkly different on this score. Back in late January, Kimberly Clark CEO Mike Hsu sounded a cautious tone about pricing and volume challenges, saying, "it's appropriate not to plan for much improvement right now." P&G, on the other hand, cited firming demand momentum when it raised its fiscal 2019 guidance.

Investors have responded to these diverging trends by sending P&G shares much higher in the past year while Kimberly Clark's have barely kept up with the market. As a result, Kimberly Clark is cheaper on a price-to-earnings basis and delivers a more robust 3.6% dividend yield.

Still, that discount isn't enough, in my view, to make Kimberly Clark a more attractive buy right now. With sales volumes barely improving, the company is likely to struggle at least through 2019 to get its profitability back on the right track. P&G, meanwhile, has a firm foundation it can build on to start capturing more market share while sending piles of cash back to shareholders through dividends and stock buybacks.