1 Great Dividend Opportunity

As investing junkies, we find ourselves constantly on the lookout for the next great opportunity. With the market a mess and the wider world looking less and less inviting, investors need to deploy their capital with the utmost discipline these days.

Face it, risk abounds at present. However, such moments come with a silver lining: They tend to drive down the prices of great companies. It's exactly at moments like these, when cooler heads prevail, that your portfolio can pick up its next long-term winner. I believe I've found one such opportunity, which I'll detail for you today.

At first thought, the ultra-fickle teen retail sector might seem like an area to avoid like the plague in today's weak-consumer environment. However, when you look past the surface, retail rock star Buckle (NYSE: BKE  ) appears to offer everything an investor could ask for.

Buckle up!
In many ways, Buckle seems the exception to the rule. In the era of the absentee consumer, a time that's witnessed consumers either cutting spending or moving down the value chain to lower-end retailers like Wal-Mart (NYSE: WMT  ) , Buckle has a growth story firmly in place. Since the Great Recession began in 2008, the company grew revenue an impressive 61%. Over the last two years, the company also produced average same-store sales growth, a key metric in the retail field, of 3% at a time when its peers tallied either negative or flat SSS growth.

And even sweeter, Buckle manages to achieve this relatively strong growth and still maintain some incredibly strong margins for the retail industry. In fact, it consistently beats its peers across the board from the top line on down.

Company

LTM Gross Margin

LTM Operating Margin

LTM Net Income Margin

Buckle 49.6% 22.0% 14.1%
Zumiez (Nasdaq: ZUMZ  ) 36.4% 9.7% 6.2%
American Eagle Outfitters (NYSE: AEO  ) 38.5% 10.0% 5.7%
Abercrombie & Fitch (NYSE: ANF  ) 63.9% 9.5% 5.3%
Aeropostale (NYSE: ARO  ) 38.4% 11.8% 6.8%
Pacific Sunwear of California (Nasdaq: PSUN  ) 38.9% (8.2%) (10.1%)

Source: S&P Capital IQ.

Buckle easily leads the field over the last 12 months. Only Abercrombie bests its gross margin, but unlike Buckle, Abercrombie doesn't see that benefit flow through to the bottom line. Buckle, on the other hand, starts with a high gross margin and maintains it beautifully, a rarity in the notoriously low-margin retail business.

Moving on, Buckle's balance sheet looks about as rock solid as you'll find in any industry. The company carries no long-term debt. Zip. Zero. In fact, it has enough cash and short-term equivalents to pay off all its liabilities. The fact that Buckle demonstrates the ability to tally these impressive performances in a pretty adverse business climate makes it all the more impressive to me. However, Buckle's story reaches its most compelling point when you examine two other key figures.

The icing on the cake
Compelling to begin with, Buckle is also a dividend dynamo that yields an impressive 6.7%. In a period in which interest rates sit around historical lows, a company offering such an impressive payout catches my eye. Considering that the S&P 500 currently yields 2%, and even that seems a somewhat appealing option, Buckle's prodigious payout looks nothing short of impeccable. Much of Buckle's eye-popping yield comes from special dividends that the board of directors first initiated in 2008. Buckle's management and board keep things pretty simple. They aim to reward their shareholders to the greatest degree possible. If they have the cash on hand and no promising opportunities present themselves, they'd just as soon give it back to shareholders. Great managements know how to properly reward shareholders. This kind of "use it if we need it, distribute it if we don't" attitude should help ensure the long-term health of the company while keeping the checks headed in shareholders' direction for some time to come. Talk about a winning combination.

Equally intriguing, insiders own a significant portion of the company -- 43.4% of total shares outstanding, to be exact, or roughly $924 million worth of stock. We love companies whose management "eats its own cooking." It's the ultimate alignment of interests for the individual investor, and for good reason. Management teams that are also shareholders clearly have a vested interest in creating shareholder value, since their performance impacts their own pocketbooks in a big way.

Foolish bottom line
So what do we have here?

On a fundamental level, Buckle appears to have an extremely healthy business, the kind investors covet even in good times. Given that times appear anything but good at present, I take even more heart in the fact that this company can still grow when the going gets tough. The company is essentially devoid of balance sheet risk. Even in a low-growth era, its massive dividend should more than compensate for any lack in earnings growth (although analysts project 11% growth over five years for Buckle), with a well-incentivized management team watching your back. In summary, this is exactly the kind of dividend stock investors should want to own.

Given all this, I think the better question is: What's not to like? While every investor needs to decide on which stocks work best for his or her individual circumstances, I think Buckle looks about as good as it gets. We Fools understand we need to watch one another's backs as well. We just completed a report detailing how to "Secure Your Future With 11 Rock-Solid Dividend Stocks." I invite you to pick up your free copy today. Just click here to access your free copy now.

Fool contributor Andrew Tonner holds no financial position in any of the companies mentioned in this article. The Motley Fool owns shares of Wal-Mart Stores and Aeropostale. Motley Fool newsletter services have recommended buying shares of Wal-Mart Stores and Zumiez. Motley Fool newsletter services have recommended creating a diagonal call position in Wal-Mart Stores. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (17) | Recommend This Article (50)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 08, 2011, at 5:19 PM, topbeancounter wrote:

    How do you get excited about a 2.5% dividend? Start at about 5% and I'll bother to read it. Waste of time to read this...

  • Report this Comment On November 08, 2011, at 5:20 PM, cheezin wrote:

    6.7% yield on Buckle?

  • Report this Comment On November 08, 2011, at 5:31 PM, puphat wrote:

    I own Buckle. It's up almost 30%. The special dividend I receive every year and the regular dividend is very nice. No complaints.

  • Report this Comment On November 08, 2011, at 5:32 PM, JTMcGee wrote:

    The yield is 6.7% if you include the abnormally fat 3rd-4th quarter dividends the company has been paying out in recent years.

  • Report this Comment On November 08, 2011, at 5:45 PM, haynesles wrote:

    Why is it down today?

  • Report this Comment On November 08, 2011, at 5:47 PM, cheezin wrote:

    I am somewhat of a newbie, I did not know about the special payouts. I only see a 2.5% dividend - is there any way to know if the special payouts will continue?

  • Report this Comment On November 08, 2011, at 6:03 PM, terracomm wrote:

    so what we have here is a company that produces ho-hum dividends for most of the year.

    but at around the 3rd quarter, kicks down some impressive cash.

    like every dividend, it's built into the price correction on the day of.

  • Report this Comment On November 08, 2011, at 6:04 PM, Chontichajim wrote:

    Buckle has been one of my best performers of the year up 29% capital, 2% regular dividend, and 5% special dividend in the fall. One year of 3 they did not have the special dividend. I own 2 clothing stocks, 1 for young people, and ROSS for mainstream so if not BKE I would replace it with another similar company. If you don't want a clothes stock avoid it (it is a little cyclical), otherwise show me a better teen clothier stock.

  • Report this Comment On November 08, 2011, at 8:54 PM, george1927 wrote:

    Did they already pay their special dividend this year? Or is that still coming?

  • Report this Comment On November 08, 2011, at 9:38 PM, henry713 wrote:

    on Yahoo finance, they have he yield at 1.8% instead of the 6.7% that you have for (BKE) IS THIS AN ERROR? AND ON WHOSE PART?

  • Report this Comment On November 09, 2011, at 12:40 AM, bmoza81 wrote:

    hey topbeancounter and haj71940,i too thought it was just 1.8%,but BKE paid out a fat $2.25 bonus dividend as well as the .20 regular dividend....thus adding up to the 6.7% yield that motley speaks of!! Look beyond the tip of your nose before starting to complain............motley is not your mother who you're both used to holding hands with!!

  • Report this Comment On November 09, 2011, at 9:42 AM, Easybeans wrote:

    Dividata is one of my favorite dividend sites... you can see BKE's special dividends in the graph, you can also see that it's continually increasing their dividend..

    http://dividata.com/stock/BKE/dividend

  • Report this Comment On November 09, 2011, at 11:53 AM, Monty116 wrote:

    All I see is a 109% payout ratio. Think I read a MF article awhile ago that said payout ratios over 20% were probably a bad thing..

  • Report this Comment On November 09, 2011, at 2:44 PM, TMFTheDude wrote:

    Hi everyone,

    Thank you for reading my article detailing Buckle yesterday. We’ve received quite a bit of feedback inquiring about the calculation of Buckle’s dividend from my article yesterday. Hopefully this email will help clear the matter up for you.

    For the fiscal year 2011, Buckle has paid a regular $0.20 dividend at four quarterly intervals. However, in addition to that, Buckle also opted to pay a special dividend of $2.25 on October 12th (for reporting purposes the last quarterly dividend and the special dividend get lumped together in the source you’ll see shortly). I referenced Buckle’s practice in the article saying “Much of Buckle's eye-popping yield comes from special dividends that the board of directors first initiated in 2008.” halfway through the paragraph under the heading “The icing on the cake.”

    Many times, the reporting services that finance sites to power their ticker pages use don’t pick up special dividend payments since they’re harder to follow. However using the sort by “dividends only” function on a Yahoo finance quote page under the “Historical Prices” section. Here’s the link to that page for Buckle.

    http://finance.yahoo.com/q/hp?s=BKE&a=04&b=11&c=...

    So Buckle actually paid its shareholders $3.05 this year. Trading at around the $45.5 per share mark it has been recently (although it’s down big today) gives a yield of right in the ballpark of 6.7% ($3.05 / $45.5 = 6.7%). I hope that clears up some of the confusion surrounding the yield I quoted in the article.

    Fool on,

    Andrew Tonner

  • Report this Comment On November 09, 2011, at 10:43 PM, skeptic94 wrote:

    How does this stand up to LULU on margins

  • Report this Comment On November 11, 2011, at 4:37 PM, monthlyincome wrote:

    I think BKE will have some problems when they report earnings next week. ANF showed some weakness when they recently reported. Buy the jeans and a put on BKE. If you want to go long, wait until after earnings to get a better price.

  • Report this Comment On November 11, 2011, at 6:38 PM, WminPhoenix wrote:

    Outside of the "special dividend" that Buckle pays each October since 2008, the regular quarterly dividend has been .20 a share. Not a spectacular ROI for a dividend payer. Buckle has only been paying small dividends since 2003. Special dividends do not necessarly scare me from a stock but the company could also stop payng them. Buckle would be a stock I would buy before the ex date and sell it when it hit my purchase price, simply a dividend capture stock.

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