A Solid Dividend Payer With Room to Grow

Last year, Buckle (NYSE: BKE  ) rose to the top of my personal pick pool. The company ticked all the boxes, with good leadership, strong sales, and solid fundamentals. Unfortunately, 2013 hasn't been as kind. The company has struggled along with the rest of the retail sector, fighting consumer apathy and lagging behind the S&P 500, year to date. Buckle's most recent hit came after it announced its third-quarter results last week, revealing a drop in comparable-store sales -- a key indicator of retailer health.

Even with the recent weakness, Buckle still has a lot going for it. Here's a rundown of why I still like the business and the stock.

The down of sales
Buckle's biggest concern right now is that it's suffering in the sales department. In the third quarter, comparable sales fell 0.5%. That put year-to-date comparable-sales growth at just 1.2%, which lags many other retailers. The weak sales at Buckle were echoed in many retailers' earnings reports this quarter, with consumers choosing to spend their dwindling cash on home improvements or other large purchases.

Even well-seasoned businesses like Gap (NYSE: GPS  ) only put forth a 1% gain in its last quarter, citing similar problems. For its part, Buckle's main miss last quarter seems to have been in its women's sales. That division saw a decline in both average transaction value and in average item price.

The up of sales
Now the upside -- Buckle is still a very strong seller. Last year, Buckle's sales per square foot hit $475, besting Fifth & Pacific's (NYSE: KATE  ) Lucky Brand, which is only managing $462. So far this year, the company looks on pace to equal or best its 2012 result.

Buckle also has room to grow in its men's business, with average transaction size well below its women's average. While the company needs to reverse the small decline that it saw in women's, it also has an opportunity to focus on men's, bringing total sales back up.

Strong management, strong dividend
The best part of Buckle, and the reason that I own shares, is that the management team seems incredibly competent. CEO Dennis Nelson came up from within the business, and he understands the company's core customers. He also runs a tight ship, allowing Buckle to pay out a solid regular dividend and a regular special dividend at the end of the year.

While deemed a "special" dividend, the company has paid out a consistent winner every year since at least 2008. This could be the one-off year, as in 2012 Buckle opted to pay a larger dividend to beat the increase in the top-end dividend tax rate that came into effect in 2013.The larger payment last year means that the board is going to have to think a bit more about a big payout this year, but the company still has a strong cash position and is still generating cash each quarter, so this year may be no different than any other.

Investing in potential
Given Buckle's strong backbone, good reputation, and potential to increase sales, the company still seems like a winner. I also like Fifth & Pacific and Gap, both of which are managing some brands to new highs. Fifth & Pacific's Kate Spade brand is effectively taking over that company, while Gap is having success overseas with the Old Navy brand.

All three businesses have the potential to keep growing and to keep rewarding investors. To put them in buckets, think of Buckle as the slow grower, Gap as the global player, and Fifth & Pacific as a sell-off candidate -- Lucky isn't going to be around long, as the company would like to focus on Kate Spade. I'm a slow growing guy myself, so Buckle is my pick of the litter.

More dividend winners
Clearly, Buckle isn't the only -- or even the best -- dividend payer out there. If you're looking for more long-term investing ideas, you're invited to check out The Motley Fool's free guide, "The 3 Dow Stocks Dividend Investors Need." It's absolutely free for our readers, so just click here now to get your copy.


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