Phillips Van Heusen Bonds Yield 28X PVH Dividend

| About: PVH Corp. (PVH)

In 2011 Phillips Van Heusen changed its name to PVH Corp. (NYSE:PVH). The company traces its origins to Moses Phillips who sold flannel shirts to coal miners in the 1880s. Moses' grandson continued to lead Phillips Van Heusen until 1987.

Van Heusen Sample Room New York City 1954

  • On January 22, 1918 John Manning van Heusen patented the "soft folding collar"
  • "Isaac Phillips bought Mr. Van Heusen's U.S. patent for his "soft-folding" collar, and the Phillips-Van Heusen alliance, and The World's Smartest Collar, were born."
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Phillips Van Heusen Corp. Bonds

PVH Corp. stock now trades at $87.17 up $35.68 cents from a year ago. The Phillips Van Heusen corp. bonds (issued before the company changed its name) currently yield 28 times PVH Corp. stock's annual dividend.

Phillips Van Heusen 7.75% 11/15/2023 bonds are rated junk by Moody's with a positive outlook, so I am cautious. In April 2010 S&P cut PVH's credit rating to junk and has since raised PVH's credit rating to BBB the second lowest of S&P's investment grades.

Phillips Van Heusen 11/15/2023 7.75% CUSIP: 718592AB4 Price: 117 Yield: 5.7% Credit Rating: Ba1/BBB
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*For more information on Phillips Van Heusen debenture call PVH Corp. investor relations.

These are non callable corp. bonds, with sinking fund protection and conditional puts, based on covenant violation. The past two issuer events listed for the bonds state:



Apparel & Retail Industry Comparison

Most of the selected equities here are at 52-week highs or in some cases all time highs. Here is a look at how PVH's 5 year stock chart compares with competitors and retailers:


PVH Corp.

  • Currently near a long term high PVH Corp. stock in particular has trouble maintaining its upper price range.
  • PVH owns popular clothing brands such as Calvin Klein & Tommy Hilfiger.
  • Phillips Van Heusen corp. bonds may be a good way to invest in PVH Corp., while picking a mutual fund for balanced exposure to the stock.
  • The company has 11,900 full time employees.

Ralph Lauren (NYSE:RL)

  • Ralph Lauren stock has soared recently and thus far has benefited from their founder, Ralph Lauren's leadership.
  • Ralph Lauren is included in the S&P 500 so one way to gain exposure to the company would be an S&P 500 fund.
  • The company has 25,000 full time employees.

American Eagle Outfitters (NYSE:AEO)

  • American Eagle pays a 2% dividend and currently is priced at $21.04 a share.
  • In March 2010 American Eagle closed it's Martin + Osa adult brand.
  • In May 2012 American Eagle sold 77kids brand clothing.
  • The company has 6,500 full time employees.


Cherokee (NASDAQ:CHKE)

  • Cherokee had to cut its' dividend significantly last year and has trended downwards ever since.
  • Though the company still boasts a 5.7% dividend, market cap. is only slightly above $100M.
  • Cherokee has averaged $9.2M net income applicable to common shares in the past three years.
  • Cherokee has just 21 full time employees.

Gap (GPS)

  • Gap stock price has reached a stock price not seen since July 2000.
  • Having invested in Gap around $20 a share the current $38 price tag seems expensive.
  • The company has 132,000 full time employees.

Retail Stores

Macy's (NYSE:M)

  • Macy's stock has gained a lot of steam; however a reality check could push the stock back to $29 it seems.
  • Macy's has some great locations and some locations that have deteriorated.
  • As online retail competes more and more it remains to be seen how Macy's physical stores will fare.
  • The company has 171,000 full time employees.

TJX Companies (TJX)

  • TJX Companies graph is very strong, the company pays a $0.40 cent annual dividend. Currently trading at $45.91 the dividend amounts to 1%
  • Exposure to TJX through a mutual fund may be a good way to play TJX in case of a downturn.
  • The company has 168,000 full time employees.

Apparel investors have seen both strong and weak performances lately. Eddie Bauer went bankrupt while Ralph Lauren has soared, American Eagle dropped then flew back to a middle ground, while Aeropostale has not been so lucky. The fit have survived leaving other businesses in the dust.

Example Portfolio

Fidelity is the top institutional holder of PVH Corp. with 9,286,467 shares as of March 30, 2012. Fidelity keeps large PVH stock holdings in four of their mutual funds.

Fidelity Capital Appreciation Fund (FDCAX) has no front end load, a 0.91% expense ratio and owns 1,739,616 shares of PVH Corp. as of May 30, 2012. Fidelity Blue Chip Growth Fund (FBGRX) has no front end load, a 0.94% expense ratio and owns 936,800 shares of PVH Corp. as of May 30, 2012.

Here are the Fidelity fund holdings:

Fidelity Blue Chip Growth Fund Fidelity Capital Appreciation Fund
Apple (NASDAQ:AAPL) Apple
Google (NASDAQ:GOOG) United Continental (NYSE:UAL) (NASDAQ:AMZN) Lorillard (NYSE:LO)
Qualcomm (NASDAQ:QCOM) TJX Companies
Coca Cola (NYSE:KO) Biogen (NASDAQ:BIIB)
Phillip Morris (NYSE:PM) Occidental Petroleum (NYSE:OXY)
Broadcom (BRCM) Bed Bath & Beyond (NASDAQ:BBBY)
McDonald's (NYSE:MCD) PVH Corp
Mastercard (NYSE:MA) Microsoft
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Though American Century Balanced Fund (TWBIX) does not hold PVH Corp. it could serve as a good alternative to Fidelity Capital Appreciation. The American Century annual prospectus shows $2.8M in North Carolina based apparel maker VF Corp. (NYSE:VFC) in addition to 120,000 Gap, Inc., 5.95%, 4/12/21 and 140,000 Hanesbrands, Inc. (NYSE:HBI) 6.375%, 12/15/20 corp. bonds.

American Century Balanced Fund
Exxon Mobil (NYSE:XOM)
International Business Machines (NYSE:IBM)
Chevron (NYSE:CVX)
United States Treasury Note
Fannie Mae Pool
Phillip Morris
Verizon (NYSE:VZ)
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Here is an example allocation to consider:

Portfolio Size Phillips Van Heusen 7.75% 11/15/2023 price: $116.50 Fidelity Capital Appreciation Fund or American Century Balanced Fund Vanguard S&P 500 (NYSEARCA:VOO) price: $65.08 Total / Percentage
50,000 1 $2,000* 2 $3,300 / 6.6%
100,000 2 $2,500 5 $5,155 / 5.1%
250,000 3 $2,550 7 $6,501 / 2.6%
500,000 4 $2,750 10 $8061 / 1.6%
1,000,000 5 $3,000 15 $9,776 / 1%
2,500,000 7 $5,000 20 $14,420 / 0.5%
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*The fund minimum is $2,500 however the minimum balance is $2,000. You might be able to request just $2,000 of either fund if you have an account with Fidelity of American Century.

Please note that Loomis Sayles Inv Grade Bond Class A (LIGRX) holds $3.7M of the Phillips Van Heusen 7.75% 11/15/2023 bonds. This fund has a 4.5% front end load in addition to a transaction fee.

Given market volatility consider watching for a downturn to contemplate the mutual fund. However the level of the market is one reason for the small allocations to begin with. The reality is now that many of these companies are going strong hindsight is 20/20.

Consider Ranges

Phillips Van Heusen bonds clearly generate more income than the company's stock. Investors should weigh the integrity of the company in order to decide if PVH Corp. could weather future economic storms. Looking back PVH Corp. has stood one test of time; however in times of economic uncertainty many families simply rely on hand-me-downs.

The importance of socio-economic factors relative to the apparel industry can not be overstated. The industry relies heavily on national employment and income levels; for instance one of my teachers explained that her mother sewed potato sacks for clothes when she was young. Today you can find a Calvin Klein Jeans dress for $89.50 and fashion designers have dreamed up a burlap dress for $1,400.

  • At right a mother during the Great Depression is dressed in a flour sack skirt.
  • Clothing stores were located in big cities, though not everyone could afford to buy clothes.

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"Mother and baby of family of nine living in field on U.S. Route 70 in Tennessee, near Tennessee River" 1936 Carl Mydans U.S. Farm Security Administration

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The idea behind a long term investment strategy is to figure how much you might invest for several years. You would not want to return to find that the one stock you picked did not do well. Therefore it makes sense to set up a balanced portfolio, in this example the holdings provide broad exposure to multiple industries.

The SPDR Dow Jones Industrial Average ETF (NYSEARCA:DIA) has taken investors on a rollercoaster ride.

As we approach levels not seen since 2007 and 2008 investors should consider possible ranges upward and downward. This is the reason why the Phillips Van Heusen bonds may be worth considering in addition to or in place of the company's stock. Through a strategy that attempts to safe guard your portfolio in the event any one position fails.

If you have any comments on this example strategy or would like to suggest a security that might work please comment below.

Disclosure: I am long AEO, ARO, GPS, AAPL, RL, KO, JOEZ, MORN, AAPL, HBI, MCD, M, IBM, XOM.

Additional disclosure: I am long Phillips Van Heusen 7.75% 11/15/2023 and American Century Balanced Fund