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With the start of the new year, prospective retirees should look at growing their nest egg through investment in strong dividend growth stocks. The markets have been flat for 2011, but there seems to be an uptrend in clothing purchases, especially from large cap companies such as Nike and VF Corp. I project 2012 to be similar to 2011, with possible sector rotation into consumer cyclical stocks, such as apparel stocks. This will be especially true for dividend growth stocks in that sector. I have picked four stocks which meet those criteria, two large cap and two mid cap stocks. (Data from Yahoo Finance, Fidelity, Thompson Reuters and David Fish's CCC charts).

  1. V.F. Corporation (NYSE:VFC) -- Consumer Cyclical Sector. V.F. Corporation designs and manufactures, or sources from independent contractors various apparel and footwear products primarily in the United States and Europe. This Dividend Champion has 39 years of increasing dividends. The current yield is 2.27%*. The 5-year dividend growth rate is 6.1%, while last year's dividend growth rate was 7.4%. The current p/e is 20.48. The projected earnings per share growth for next year is 16.71%, while for the next 5 years it is projected to be 12.54%. *It should be noted that the yield does not meet my 4% minimum for initial investment. I have followed this stock for several years and it continues to rise in price, even as the dividends are raised. It would make a good long-term retirement portfolio investment, but the yield will probably remain below 4%. The current price is justified by the high earnings per share growth rate.
  2. Nike, Inc. (NYSE:NKE) -- Consumer Cyclical Sector. NIKE, Inc., together with its subsidiaries, engages in the design, development, marketing, and sale of footwear, apparel, equipment, and accessory products for men, women, and children worldwide. This Dividend Contender has 10 years of increasing dividends. The current yield is 1.49%*. The 5-year dividend growth rate is 13.8%, while last year's dividend growth rate was 10.7%. The current p/e is 20.64. The projected earnings per share growth for next year is 5.57%, while for the next 5 years it is projected to be 11%. *It should be noted that the yield does not meet my 4% minimum for initial investment. This stock is also a growth stock. The growth rate projected for earnings in 2013 is 17% with earnings projected to be $5.80 — The stock is currently fairly priced on that metric.

  3. Columbia Sportswear Company (NASDAQ:COLM) -- Consumer Cyclical Sector. Columbia Sportswear Company, together with its subsidiaries, engages in the design, development, sourcing, marketing, and distribution of outdoor apparel, footwear, accessories, and equipment in the United States, Latin America, the Asia Pacific, Middle East, Africa and Canada. This Dividend Challenger has 6 years of increasing dividends. The current yield is 1.89%*. The 5-year dividend growth rate is 43.8%, while last year's dividend growth rate was 16.2%. The current p/e is 17.11. The projected earnings per share growth for next year is 13.07%, while for the next 5 years it is 17.38%. *It should be noted that the yield does not meet my 4% minimum for initial investment. This stock is also a growth stock. The growth rate projected for next year and for the next 5 years justify the current price.

  4. Guess?, Inc. (NYSE:GES) -- Consumer Cyclical Sector. Guess?, Inc. designs, markets, distributes, and licenses lifestyle collections of apparel and accessories for men, women, and children. It offers collections of denim and cotton clothing, including jeans, pants, overalls, skirts, dresses, shorts, jackets, knitwear and intimate apparel. The Company operates in five segments: North American retail, Europe, Asia, North American wholesale and licensing. This Dividend Challenger has 6 years of increasing dividends. The current yield is 2.68%*. The 5-year dividend growth rate is 23.36%, while for last year it was 32.2%. The current p/e is 10.18. The projected earnings per share growth for next year is 4.78%, while for the next 5 years it is projected to be 12.39%. *It should be noted that the yield does not meet my 4% minimum for initial investment. This stock is also a growth stock. The projected earnings per share growth for 2013 is 8.79% and the projected earnings are $3.34. The current price is justified by the projected earnings growth.

A chart comparing these four stocks over the last five years shows the cyclical nature of three of the four stocks, when compared to SPY (S&P500 Index ETF). The strong growth of NKE kept it strong during the Great Recession.


(Click to enlarge)

We will now look at the dividend income stream for these four stocks. With equal positions of $10k each purchased 1 year ago, these stocks produced a quarterly income stream as shown in the following table:

Stock

Quarterly Dividend Rate

Number of Shares

Quarterly Income

VFC

$.63

102.4

$64.51

NKE

$.31

111.3

$34.50

COLM

$.20

158.9

$62.98

GES

$.20

265.88

$53.18

In order to investigate the growth of the portfolio, due to dividend reinvestment, I will once again create a spreadsheet for only the last year (January 2011-January 2012).

Stock Date of reinvest Div Rate # Shares Dividend Drip price # Shares pur Total Value
Totals 104.88 $269.93 2.48
VFC 12/07/11 $0.72 104.33 $75.12 $137.85 .54 $14,457.07
09/07/11 $0.63 103.77 $65.37 $116.27 .56 $12,130.50
06/08/11 $0.63 103.06 $64.93 $91.77 .71 $9,522.80
03/09/11 $0.63 102.40 $64.51 $97.65 .66 $10,063.87
Totals 112.94 $144.38 1.64
NKE 12/01/11 $0.36 112.51 $40.50 $95.25 .43 $10,757.30
09/01/11 $0.31 112.11 $34.75 $86.55 .40 $9,737.93
06/02/11 $0.31 111.68 $34.62 $81.15 .43 $9,097.78
03/03/11 $0.31 111.30 $34.50 $89.84 .38 $10,033.70
Totals 161.28 $137.37 2.38
COLM 11/15/11 $0.22 160.60 $35.33 $52.10 .68 $8,402.65
08/16/11 $0.22 159.94 $35.19 $52.90 .67 $8,495.80
05/07/11 $0.22 159.41 $35.07 $66.05 .53 $10,563.77
02/15/11 $0.20 158.90 $31.78 $62.93 .51 $10,031.36
Totals 272.22 $214.41 6.34
GES 12/12/11 $0.20 270.32 $54.06 $28.39 1.90 $7,728.41
09/02/11 $0.20 268.58 $53.72 $30.87 1.74 $8,344.74
06/06/11 $0.20 267.28 $53.46 $41.25 1.30 $11,078.87
03/28/11 $0.20 265.88 $53.18 $37.91 1.40 $10,132.69

At this point, I will add a table to illustrate the growth of dividends received and the steadily growing income over time.

Stock

Q1

Q2

Q3

Q4

VFC

$64.51

$64.93

$65.37

$75.12

NKE

$34.50

$34.62

$34.75

$40.50

COLM

$31.78

$35.07

$35.19

$35.33

GES

$53.18

$53.46

$53.72

$54.06

Totals

$183.97

$188.08

$189.03

$205.01

In addition, I will illustrate the total value of this portfolio by quarter in the following graph:


(Click to enlarge)

It can be seen from the table that the income for the year was $766.09. On an investment of $40k, this was 1.9% yield. It can be seen from the Total Portfolio chart that the ending portfolio value was $41345.43. This computed out to a capital gain of $1345.43 or 3.36%. From the chart it can be seen that most of the gain occurred in the 4th quarter. It should be noted that 57% of the capital gain is attributed to the dividends reinvested.

When compared to SPY, which pulled out a 2% yearly return (flat gain + 2% dividends), these stocks were 68% better on the year. Most of this out-performance can be attributed to VFC. Over the longer 5-year period as shown in the price chart above, NKE was superior with a 100% gain.

Conclusion: The Consumer Cyclicals Sector is the first sector to come out of a business cycle downturn. These apparel stocks indicate that markets may already be rotating out of the bottom of the last cycle and they could perform well in 2012. A lot depends on global consumption, especially in Asia. For an investor looking to build a retirement portfolio, these dividend growth stocks all have a place in that portfolio. Some of them show strong resilience to the secular downturn at the bottom of the business cycle. It is critical that each investor does their own due diligence before making any investment.

Source: 4 Apparel Stocks For Retirement Dividend Growth