These two retailers just raised their dividends. Is it a purchase?
Dividend increases are generally a sign of a healthy company, usually indicating that the company has generated solid profits and has enough excess cash to reward shareholders. Two retail – large-cap stocks in the past week or so. ross store (NASDAQ:ROST) and mid-cap stocks Academy Sports and Outdoor Activities (NASDAQ:ASO) — increased its dividend payout.
Let’s take a closer look at these two stocks to see if these dividend increases are worth investors’ attention.
A significant improvement for Ross.
Ross Stores is a chain of discount clothing stores with approximately 1,700 stores across the United States, making it one of the largest clothing retailers in the United States.
Last week, the company reported fourth-quarter results that significantly exceeded analysts’ estimates. The retailer reported $6 billion in sales for the quarter, up 15% year-over-year, with same-store sales up 7%. Net income was $610 million, or $1.82 per share, compared to $447 million, or $1.31 per share, in the year-ago quarter. Operating margin increased 165 basis points to 12.4% in the quarter, primarily driven by strong same-store sales and lower freight costs.
A strong balance sheet with $4.9 billion in cash and $1.9 billion in operating cash flow allowed Ross to initiate a two-year stock buyback plan and increase its dividend by 10% to 37 cents per share, with a 1% yield. The retailer has a low accrual ratio of 24%, so it should be sustainable even with modest growth expected in 2024.
Academy Sports & Outdoors isn’t scheduled to release its next earnings call until March 21, but it has already announced a quarterly dividend of 11 cents per share, which will be paid to shareholders on April 18. This is a 22% increase from the last dividend. 0.53% return
Although it doesn’t have its latest quarterly results yet, the sporting goods retailer reported disappointing earnings results in the third quarter, with sales down 6.4% to $1.4 billion and net income down 24% to $100 million. Academy Sports also lowered its revenue and net profit guidance range for fiscal 2023.
“In this challenging macroeconomic environment, the Academy continues to focus on cost control and inventory management to maintain healthy margins and optimize cash flow,” Chief Financial Officer Carl Ford said in the third quarter earnings report. “He said. “This strategy allows us to maintain a strong balance sheet and self-fund our strategic initiatives. “We are also focused on creating shareholder value, including repurchasing $44 million of stock and paying $7 million in dividends to shareholders during the quarter.”
Which is a better buy?
Of these two dividend raisers, one stock clearly stands out. Ross Stores has higher returns, a stronger balance sheet, lower debt relative to cash flow, better efficiency, and solid earnings growth with a modest profit expected in 2024. Additionally, as a discount clothing retailer, the company will see solid demand for: When the economy slows down, you become a competitor.
Meanwhile, investors will want to check out Academy Sports’ fourth-quarter earnings report, due on March 21, for its fiscal 2024 outlook. However, based on the last quarterly report and guidance for the end of 2023, it showed poor performance. The dividend yield is also low.
Analysts’ consensus price target for Ross Stores is $163 per share, which would be about 12% higher than the current price of $145 per share. With a reasonable valuation of around 25 times future earnings, Ross appears to be a solid buy overall, both for its dividend and its potential for capital appreciation. So it seems better to buy both stocks.
disclaimer: All investments involve risk. Under no circumstances should this article be taken as investment advice or constitute liability for investment profits or losses. The information in this report should not be relied upon for investment decisions. All investors should conduct their own due diligence and consult their own investment advisors when making trading decisions.
