Investor Bill Miller seems befuddled. In his July 2010 commentary, he wonders why investors keep purchasing 10-year Treasuries yielding about 3% when companies like ExxonMobil offer much higher potential returns.

His formula for Exxon is straightforward: "A sum of the dividend yield, growth rate and share shrink could represent an attractive annual return even if the valuation stays the same, and the valuation is among the lowest the company has traded at in years." When you add up the components, Exxon could offer 18% returns per year in a low-return environment.

I'm no less baffled than Miller by investors' preference for bonds, but I do think he's on to something. To see whether more Miller-like opportunities like Exxon were out there, I looked for companies with:

  • A dividend yield greater than the 3% 10-year Treasury yield.
  • A five-year track record of dividend growth.
  • A history of repurchasing shares.
  • A P/E less than 25.

Among clothing retailers, American Eagle Outfitters (NYSE: AEO) fit the bill and stacked up well against some competitors.



5-Year Dividend Growth

Share Shrink TTM


American Eagle Outfitters





Abercrombie & Fitch (NYSE: ANF)





Aeropostale (NYSE: ARO)





TTM = trailing 12 months.

From the table above, American Eagle fits Miller's criteria perfectly. It pays a 3.4% dividend that has been growing 40.4% on average for the past five years. The company also trades at 17.1 times earnings and produces plenty of cash flow to repurchase shares. I can't say the same for competitors Abercrombie & Fitch or Aeropostale.

Foolish bottom line
Would Bill Miller consider investing in American Eagle? It meets all the criteria above, and it could offer a sizable return over time -- although it will be hard for the company to maintain such a dividend growth rate. Still, in today's low-return environment, that's pretty attractive. I don't know why the market is offering up this opportunity, but as long as it is, American Eagle could be worth pursuing further.

Million Dollar Portfolio associate advisor David Meier does not own shares of any of the companies mentioned. The Motley Fool owns shares of ExxonMobil. The Fool's disclosure policy never goes out of style.