3 Fashion Companies for Dividend Growth Investors

TJX, Gap, and VF Corporation are three well-managed fashion companies to dress up your portfolio with long-term dividend growth.

Jan 17, 2014 at 5:40PM

Fashion can be a fickle and volatile business, but it can also be particularly profitable for investors in companies that know how to consistently deliver the right merchandise to their customers while generating growing cash flows for shareholders. TJX (NYSE:TJX), Gap (NYSE:GPS), and VF Corporation (NYSE:VFC) are three well-run companies in the fashion and apparel business with healthy dividend growth prospects.

Low prices and high dividend growth from TJX
TJX operates more than 3,200 apparel and home fashion discount stores in the U.S., Canada, and Europe under different brand names like T.J.Maxx, Marshalls, and HomeGoods, among others. The company is the largest off-price retailer in the world, and its scale and global reach provide a position of strength when negotiating with suppliers.

TJX purchases inventory from department stores under favorable conditions. This allows the company to obtain conveniently low prices, which it translates into pricing discounts in the range of 20% to 60% below regular prices.

This business model has been remarkably fruitful for the company from a financial point of view: TJX has reported growing comparable-store sales in each of the last 17 consecutive years, an enviable track record of resiliency in such a competitive and cyclical industry.

Management believes it can ultimately expand its store base to 5,150 units in the long term, considering only current chains and current markets. TJX has plenty of room for growth, especially because new openings are not cannibalizing sales at existing locations.

TJX pays a modest dividend yield of 0.9%, but dividend growth has been quite impressive. The company has raised payments during the last 17 consecutive years, and the compound annual dividend growth rate was 23% during that period. This includes a big increase of 26% in 2013.

Gap is a consistent performer
Gap operates more than 3,500 stores under its widely recognized brands Gap, Banana Republic, Old Navy, Piperlime, Athleta, and Intermix. The company has a presence in more than 90 countries, and offers affordable prices in basic apparel to a wide audience of customers.

Competition has been increasing from different fronts lately. Mass merchants like Target and Kohl´s are broadening their presence in the basic fashion apparel business, and international player Inditex -- the owner of Zara and other affordable fashion brands -- has expanded rapidly during the past few years.

However, Gap is proving its ability to compete efficiently and continues delivering results for investors under challenging industry conditions. The company announced a solid increase of 1% in comparable-store sales for the holiday season, and management now expects earnings per share to be near the high end of its guidance for fiscal 2013.

The company increased dividends twice during 2013, including a big increase of 60% from $0.6 per year to $0.8 per year, announced in August. Dividend payments have grown almost tenfold since 2004 at this consistent fashion retailer, and Gap yields 2.1% in dividends at current prices.

VF for long-term dividend growth
VF Corporation is a global leader in branded lifestyle footwear and apparel. The company owns more than 30 brands, including notable names like The North Face, Vans, Wrangler, Timberland, and Lee, among others. VF has considerable presence in Europe, and its products can be found in nearly 1,400 stores across Asia.

This diversity of brands and strong global presence provide diversification and stability for the company, and VF has a truly exceptional track record of dividend growth. The company has raised dividend payments during the last 41 consecutive years, and it has returned nearly $5 billion to shareholders via dividends and share buybacks over the last decade.

This long-term track record of growing dividends is unique for a company in the footwear and apparel business, and a strong reflection of financial soundness and competitive strength. Besides, dividend growth seems to be far from over considering that the company announced a big increase of 21% in distributions for 2013. The stock has a dividend yield of 1.7%.

Bottom line
TJX, Gap, and VF Corporation stand out among other fashion and apparel companies because of their sound dividend trajectories, and healthy dividend growth prospects. 
It takes a well-managed business with strong competitive advantages to generate consistently growing cash flow over the years, and that can be a powerful driver of superior returns for investors.

The changing face of retail
To learn about two retailers with especially good prospects, take a look at The Motley Fool's special free report: "The Death of Wal-Mart: The Real Cash Kings Changing the Face of Retail." In it, you'll see how these two cash kings are able to consistently outperform, and how they’re planning to ride the waves of retail's changing tide. You can access it by clicking here.

Fool contributor Andres Cardenal has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers