Abercrombie & Fitch (NYSE:ANF), despite its present woes, looks ready to begin its comeback in 2017. And that means dividend investors should take note of A&F's yield of 6.7%. The question is can A&F continue payouts, while trying to reinvent their brand?
Many analysts strongly suggest investors avoid ANF like the plague. And it's easy to see why. The company's share price plummeted almost 54% during 2016. Year-over-year store sales dropped each quarter for the last fifteen quarters. None of this is encouraging.
The company will release its next earnings report at the beginning of March 2017. Analysts expect A&F's earnings per share to be $0.78. During the same quarter in 2016, the company reported earnings per share of $1.08, indicating a 30% drop year over year. However, the forecasted $0.78 beats the heck out of the prior quarter's earnings per share of $0.02. Analysts set the target price for A&F over the next year anywhere between $10 on the low end and $24 on the high end.
At the present moment, A&F's shares are trading at $11.94.
In spite of all the negative numbers cited above, I think A&F remains a good dividend investment for a number of reasons. First, even though earnings are down, A&F still produces plenty of free cash flow, $131 million over the last four quarters. Second, A&F is in the process of rebranding itself. Last year the company made Fran Horowitz Chief Merchandising Officer. Horowitz salvaged Hollister and should do the same with A&F. She is refreshing A&F's brand identity, which should make it possible for the company to compete against the so-called "fast fashions." In addition, A&F is redesigning its stores.
A&F's brand identity lost influence when it became known as the brand for rich, beautiful snobs. That perception pretty much killed A&F in the marketplace. There's nothing wrong with being a luxury brand, but in-your-face superciliousness doesn't sell. The sad fact is that A&F does not have a CEO, much less one that is visionary and charismatic. 2017 should see A&F appoint a CEO. That alone should energize the company and its stock.
Third, two other moribund retailers made impressive comebacks in 2016, Pier 1 Imports (NYSE:PIR) and Best Buy (NYSE:BBY). Both companies were proclaimed dead and buried by analysts. Thus, a top-notch luxury brand like A&F should be able to resurrect itself.
Fourth, A&F's dividend history has remained constant over the last fifteen quarters, even as earnings slumped during the same time frame. This reflects the company's healthy free cash flow, which still remains strong. Therefore, I don't see payouts ceasing or being reduced.
Finally and most importantly, A&F's attempts at rebranding appear to be working. According to TheStreet, A&F's Hollister brand scored big during this year's recent Black Friday. This trend, given time, should carry over to A&F as they realign their brand.
With A&F's share price around $12, now is a great time to dive into the company's 6% dividend. Investors should look for slow growth in 2017, with earnings per share increasing over successive quarters and the share price reaching the $15 mark by the end of 2017. Free cash flow will improve during the second half of the year and payouts will continue at the present rate.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.