1 Great Dividend You Can Buy Right Now

Dividend stocks are everywhere, but many just downright stink. In some cases, the business model is in serious jeopardy, or the dividend itself isn't sustainable. In others, the dividend is so low it's not even worth the paper your dividend check is printed on. A solid dividend strikes the right balance of growth, value, and sustainability.

Today, and one day each week for the rest of the year, we're going to look at one dividend-paying company that you can put in your portfolio for the long term without too much concern. This isn't to say these stocks don't share the same macro risks that other companies have, but they are a step above your common grade of dividend stock. Here is last week's selection.

This week, we're going to take a look at a stock that could be the heart and sole of your portfolio, Foot Locker (NYSE: FL  ) .

Before you run, you walk... before you walk, you crawl
Foot Locker and the footwear sector hasn't always been a great buy. In fact, Foot Locker got itself into quite a bit of trouble in the mid-2000s and was forced to trim its store count and enact serious restructuring efforts to turn its business around. As you can see from its latest quarterly results, it worked.

In its recently ended quarter, Foot Locker reported earnings of $0.83, a record, and a 9.7% rise in comparable-store sales. That's phenomenal considering that consumer wages are only increasing by 2% and overall spending remains lackluster.

The have been three keys to Foot Locker's recent success story.

First, it has been in controlling its costs exceptionally well. Foot Locker has been able to keep them under control by not being shy about closing underperforming locations and remodeling its older stores as needed. One of the luxuries provided by its strong cash flow and $774 million in net cash is that it allows for the company to open new locations and remodel existing stores by using operating cash flow and not hurting shareholder equity.

Second, Foot Locker has been able to pass along the rising cost of raw materials onto consumers. This is one of the primary reasons that comparable-store sales have jumped so high. Although some footwear makers like Nike (NYSE: NKE  ) have been able to weather the higher costs of raw materials and successfully pass those costs down the line, others like UGG-boot maker Deckers Outdoor (Nasdaq: DECK  ) have not fared nearly as well as expansion and sheepskin costs have battered its bottom line and sunk its stock price.

Finally, Foot Locker has avoided being swept up in trendy fads. Crocs (Nasdaq: CROX  ) has done its best to avoid the stigma of producing a trendy shoe, but when the majority of sales are generated from mall kiosks and the shoes all look similar, it's always going to contend with doubters like me. Those fears again came to fruition in October when the company's results badly missed Wall Street's expectations and its stock was stepped on and driven into the ground.

Foot Locker did a good job of avoiding the whole toning-shoe hoopla as well. Although it does carry Skechers (NYSE: SKX  ) and Reebok-brand athletic shoes, the company generally avoided carrying a huge selection of these companies' toning shoes. That's a good thing because lawsuits and misrepresentations have hurt both Skechers and Reebok without so much as denting Foot Lockers' bottom line.

Laces out, Foot Locker
But let's face it: The real reason we're looking at Foot Locker today is its fast-growing dividend. Since the company reinstated its quarterly dividend in 2003, payouts have increased to the tune of 500%. That works out to an annual increase of 22% per year. Have a look for yourself:

Source: Dividata. *Assumes $0.18 quarterly payout for remainder of fiscal 2012.

The great thing is this dividend growth trend doesn't look like it's anywhere near done. Foot Locker has stated that it wants to use some of the cash flow it's generating for "high-growth opportunities," but you can bet with a payout ratio of just 33% that its dividend will likely continue to creep higher.

Foolish roundup
With many of its locations in mall-based shopping centers, you'd think Foot Locker would be bowled over by its competition, when in reality, it's the one walking all over its peers. Its 2.2% yield may not look like much right now, but the trend we've witnessed over the past nine years coupled with the $345 million in free cash generated in 2011 indicate that it's likely to go higher. Thus far footwear has been resistant to weakened consumer spending habits, and that's a trend that doesn't appear likely to change anytime soon.

If you're craving even more dividend ideas, I invite you to download a copy of our latest special report, "Secure Your Future With 9 Rock-Solid Dividend Stocks," which is loaded with income-producing companies hand-selected by our top analysts. Best of all, this report is free, so don't miss out!

Fool contributor Sean Williams has no material interest in any of the companies mentioned in this article. You can follow him on Motley Fool CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

Motley Fool newsletter services have recommended buying shares of Nike and Skechers, as well as creating a diagonal call position in Nike. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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 that dances to the beat of its own drum.


Read/Post Comments (1) | Recommend This Article (6)

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 June 02, 2012, at 12:08 PM, imzcount wrote:

    Crocs (Nasdaq: CROX ) has done its best to avoid the stigma of producing a trendy shoe, but when the majority of sales are generated from mall kiosks and the shoes all look similar, it's always going to contend with doubters like me. Those fears again came to fruition in October when the company's results badly missed Wall Street's expectations and its stock was stepped on and driven into the ground.

    Sean,

    I understand why you feel this way about Crocs shoes. I was dismayed when shopping for Crocs and there was a limited amount of stock in those kiosks and even in the department stores as well. That is why they derive a good amount of revenue from the online site. Unfortunately many people think of Crocs as that clunky plastic shoe company. This is rapidly changing as the Crocs corp are eliminating many kiosks and this year are adding up to 100 Crocs only shoe store retail outlets. If you think all their shoes look alike then check out Crocs.com and you will see the wide selection they now have. As far as the crushing of the stock price, investors expections were too high last fall. (They still beat the estimates by a penny). As a matter of fact they've beaten eps estimates every quarter for the past 4 years. The major point that people are missing about Crocs is their patented Croslite sole in every pair of Crocs brand shoes. I'm a believer since my daughter gave me a pair of flip-flops. Now Crocs are the only shoes I can wear and be comfortable. I put on some older non-Crocs flip flops or some Swisskriss tennies, it's almost like walking on wooden shoes comparatively speaking. So it is the comfort as well as the lightweight that I believe is Crocs major selling point.

    The shoes are selling like hotcakes in Asia and according to the latest analyst call, one Crocs store in Hong Kong averages $5 grand a day in sales.

    In my opinion it is only a matter of time (how time is any ones guess) before investors show some love to this stock. As they say, value will out.

Add your comment.

DocumentId: 1900811, ~/Articles/ArticleHandler.aspx, 4/20/2014 6:27:14 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement