There are a few Fools here in the office who lament our decision to not invest in Abercrombie & Fitch
It's been plenty painful to watch American Eagle stock rise from less than $10 a year and half ago to just over $30 now. But today's announcement of an annual dividend increase from $0.20 to $0.30 adds insult to injury. That move raises the company's current yield up to just below 1%.
I imagine you're wondering why this guy gets so caught up in a 1% yield. Well, it's not the 1% yield that gets to me; it's the 3.3% yield I would be getting had I purchased shares when I was giving it consideration and the impact of my reinvesting those dividends going forward -- be it in American Eagle or elsewhere.
But let's ignore my oversight and take a look at the dividend itself. I estimate that with today's increase to $0.30 annually, the company is paying out only 17% of its free cash flow and only 29% of its average free cash flow for the past three years. In short, I wouldn't be surprised to see healthy annual increases in American Eagle's dividend in future years and a payout ratio that stays in control.
For an income investor considering American Eagle for its growing dividend and business, there are a few other retailers out there worth a look as well, such as Limited Brands
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