These 3 Apparel Stocks Have Dividend Yields of Over 4%


Apparel companies have endured a tough few years, with the “death of retail” narrative, the COVID-19 pandemic and the current inflationary environment all combining to throw some serious wrenches into their plans. But this gauntlet of challenges has created the opportunity to buy some of the cheapest stocks in the market, trading at rock bottom price/earnings multiples and posting high dividend yields.

Here are three apparel stocks that all have dividend yields of 4% or more.

Image source: Getty Images

1. Hanesbrand

I’m going to be brutally honest here — Hanesbrands (HBI 0.00%) is not a particularly exciting undertaking; approximately 60% of its business is in the sale of loungewear, which includes items such as underwear, undershirts and socks. While admittedly a fairly mundane end market, the company’s dividend yield of over 5% is attractive. Although Hanesbrands has been a consistent dividend payer since at least 2013, one factor to note is that the dividend payout itself has not changed since 2017 and the yield is currently north of 5% as the share price the stock fell. On the positive side, Hanesbrands has maintained its dividend payout throughout the COVID pandemic in 2020 and 2021, at a time when many companies have suspended or reduced their dividend payouts.

Hanesbrands is a defensive game relatively well suited to dealing with today’s economic challenges; at a time when tipsters are warning discretionary spending is down, items like socks and underwear are essentials that consumers still need to buy. Additionally, the stock trades at a modest price/earnings multiple of 8 and an even more attractive forward earnings multiple of just 6.4.

Hanesbrands also has more under the hood than some observers realize – it owns the popular Champion brand, which has enjoyed a renaissance among younger consumers, in part because its products are reasonably priced. Management is targeting $3.2 billion in annual sales for Champion by 2024, up from $2 billion in 2021.

An investor starting a position in Hanesbrands would expect to generate returns through a combination of the stock’s dividend yield of over 5% and share price appreciation as the market awards Hanesbrands more. credit for Champion’s growth and reassesses its low valuation.

2.VF Corp.

Some investors may not know the name VF Corp. (VFC -1.80%), but almost everyone will be familiar with some of the brands under its umbrella, which include household names like Vans, Timberland and The North Face. VF Corp. isn’t as cheap as the other companies on this list from a valuation perspective, but after a 44% decline from its 52-week high, VF stock is trading at 15x earnings and just under 13 times next year’s earnings, which is cheap relative to the broader market. Plus, it pays a generous dividend that currently yields 4.3%. While VF isn’t usually mentioned in the same breath as some of the quintessential dividend stocks, perhaps it should be, as the company is a dividend aristocrat, meaning it’s raised that dividend every year for at least 25 years (49 years in this case).

Vans, Timberland and The North Face combine to account for approximately 60% of VF’s sales. Vans has a lot of potential as it continues to evolve from an action sports brand to a global fashion and lifestyle brand with appeal in all markets. For example, while Vans was originally popular with young men, the company claims that 60% of the brand’s customers are now women. The brand also enjoys a solid reputation among young consumers. The move appears to be paying off as Vans was a $350 million brand when VF acquired it in 2004 and is pushing towards management’s forecast of $4 billion in sales for 2022. That goal means there still has plenty of avenues for growth inside what Euromonitor calls the $152 billion global market for sports-inspired apparel and footwear.

3. American Eagle

Last but not least, we have American Eagle Outfitters (AEO -2.93%), which has the highest dividend yield of the group of 5.4% at current prices. Like Hanesbrands, it should be noted that American Eagle’s dividend yield is so high because the stock price has fallen. Another downside to consider is that while American Eagle has traditionally been a dividend payer, it briefly suspended its dividend in 2020 during the worst of the COVID-19 pandemic. However, the company then paid a deferred dividend in December 2020 when management felt it was in a better position to do so. American Eagle resumed paying regular dividends, then increased its quarterly dividend from $0.138 to $0.18 per share.

American Eagle shares are decidedly cheap no matter how you slice them. Shares change hands at just 7 times earnings and 5.6 times next year’s earnings, and at a price-to-sales ratio of just 0.5, meaning the whole company is valued less than half of the revenue it will generate this year.

The market values ​​American Eagle as if it’s out of fashion, but it’s not. The company is increasing its profits and revenue, and its brand still resonates. American Eagle is popular with teens and young adults, ranking as the #1 jeans brand for consumers aged 15-25 according to research by NPD Group, and ranking as the #2 fashion brand for women and #3 for men, according to Piper sandler. Like HanesBrands with Champion, American Eagle is another company home to a rapidly growing brand – Aerie is the crown jewel here, with 27% year-over-year growth in the last quarter and an increase of revenue growth for 29 years. consecutive quarters.

An investor buying shares of American Eagle should consider the dividend payout combined with an inexpensive valuation and the possibility of share price appreciation, as the market recognizes the value of the Aerie brand and the popularity business with young adults.

Look forward

Current macroeconomic challenges and market volatility have created the opportunity to buy these strong apparel brands at favorable valuations and with attractive dividend yields of 4% or more to retain investors until market conditions improve. improve.


Comments are closed.