Getting Defensive to Start March With a Dividend Aristocrat

This Dividend Aristocrat Is Well on Its Way to a 'Coronation'

Trading for February came to a close on Friday. The month was more volatile than January.

The SCOTUS invalidated most of the Trump administration’s tariff policies and the president implemented a series of different tariffs as a result. Two aircraft carrier groups have been positioned towards the Middle East as a new conflict with Iran looks like it could happen to open March. Blue Owl Capital (OWL) reignited worries around the private credit markets and fears around coming disruption from AI played whack-a-mole with various sectors of the market, particularly with SaaS software companies.

One of themes of the month was a rotation out of growth into value names. Indeed, most of the members of the Magnificent Seven are down for the year after driving most of the gains in equities since late 2022.

The approximate divergence between the iShares S&P 500 Growth ETF (IVW) and iShares S&P 500 Value ETF (IVE) is around seven percent so far in 2026. I expect this rotation to continue to March as some reversion to the mean trading action is long overdue. What's more, a further rise in market volatility should spark an additional flight to safety.

That should benefit defensive sectors such as healthcare and consumer staples. So, to start March, we begin with a conservative covered call trade in well-known consumer staples name.

Kimberly-Clark (KMB) is a large provider of consumer and personal care goods with a concentration on paper-based products that are sold in over 175 countries. the company boasts a portfolio of six $1 billion brands, including Kleenex tissues, Huggies disposable diapers, Cottonelle toilet paper, Scott paper tissue and towel products, Depend adult undergarments, and Kotex feminine products. Also, it will onboard four more billion-dollar brands pending its acquisition of consumer health concern Kenvue (KVUE) .

Kimberly-Clark has 17 brands that occupy the number one or number two position in ~70 countries across the globe. It is the very definition of a slow-growing and diverse consumer staples brand. Its business model is not going to be disrupted by AI, and growing AI capabilities should improve operational efficiencies over time and boost thin margins.

KMB shares have traded more or less between $120 and $150 during the past seven years, but did break out during the Covid pandemic to hit $160 in 2020. That range was pierced to the downside in November when Kimberly-Clark announced that it was acquiring Kenvue. The Kenvue purchase will boost debt on Kimberly-Clark’s balance sheet, but the net leverage will go to a quite manageable 2x.

The stock currently trades around $110. A company director bought just over $1 million worth of shares in February. It was the largest insider purchase in many years.

The shares in this slow-growing concern trade at around 14.6x forward earnings estimates, a reasonable valuation given the defensive nature of the business and the shares' over 4.6% dividend yield. Kimberly-Clark is also a Dividend Aristocrat having raised its payout every year for just over a half of a century.

Here is the very conservative way I have taken a position in this equity.

Option Strategy

Here is how one can initiate a position in KMB utilizing a covered call strategy. As a reminder, covered-call orders involve buying an equity and simultaneously selling just out of the money call strikes against the new position.

Selecting the October $105 call strikes, fashion a covered call order with a net debit in the $99.25 to $99.75 a share range (net stock price - option premium). Liquidity is solid within the options against this equity.

This strategy provides downside protection of approximately 13% at midpoint over the trade’s duration which includes three dividend payouts of $1.28 a share.

The strategy also provides upside return potential just over 9%, including dividends, even if the stock trades down 5% over its option duration.

At the time of publication, Jensen was long KMB.