It is a "would-be" Dividend Aristocrat, a group of stocks in the S&P 500 with annual dividend increases for 25+ consecutive years. If it weren't for Weyco's smaller market cap, it would be on the list of Dividend Aristocrats. In fact, Weyco has a longer dividend growth history than many current Dividend Aristocrats.
Walking Tall With Strong Profits
Weyco Group designs and manufactures footwear. It was founded in 1906. Today, it has a market capitalization of $317 million. Weyco's brand portfolio consists of Florsheim, Nunn Bush, Stacy Adams, BOGS, Rafters, and Umi. The company sells its products mainly through department stores and specialty retailers. It also operates Florsheim concept stores in the U.S. and Australia, as well as in a variety of international markets.
The benefit of Weyco's strong brands is that the company has achieved high profitability. In its fourth quarter 2018 report, Weyco generated 19% earnings growth. Overall, Weyco Group had net sales of $89.6 million for the quarter, an increase of 12% from the same quarter a year ago.
Net sales in the core North American wholesale segment rose 15% in the fourth quarter, led by BOGS and Florsheim, which grew sales by 34% and 23%, respectively. Stacy Adams net sales were up 6% for the quarter. These positive sales results were partially offset by a 2% sales decline for the Nunn Bush brand. Separately, Weyco's earnings were positively impacted by the lower U.S. federal tax rate of approximately 21%, compared with a 35% tax rate in 2017.
Weyco Group has positive growth potential, even though the operating environment is uncertain right now. The e-commerce boom has led to major challenges for Weyco Group's retail distribution. Still, net sales in the North American retail segment rose 19% last quarter. Fortunately, the company is building its availability in new sales channels such as e-commerce. Same-store sales, including U.S. internet sales, were up 21% for the fourth quarter, due mainly to increased sales on the company's websites.
Weyco scores well across multiple safety metrics. Thanks to a strong balance sheet with very low levels of interest-bearing debt, the dividend payout is highly secure. Its payout ratio is modestly above 50%, which indicates a comfortable dividend policy. In addition, with very high interest coverage, the company's debt is manageable.
That said, Weyco does not possess many identifiable competitive advantages. Footwear is a highly competitive business, and as a relatively small player, Weyco does not possess economies of scale over its larger competitors. In order for Weyco to navigate the tough environment, it needs to continue investing to catch up in e-commerce. The company does have the financial resources to sufficiently invest in growth, which is why it should be able to continue raising its dividend each year.
Step Up Your Dividend Growth With Weyco
On May 3, 2018, the Company's Board of Directors declared a cash dividend of $0.23 per share, representing an increase of 5% above the previous quarterly dividend rate of $0.22 per share. Despite Weyco's slowing growth, the company still has the flexibility to raise its dividend each year. Weyco kept on raising its dividend even during the Great Recession of 2007-2009. The company has a recession-resistant business, as consumers will always need footwear, even if the economy enters a downturn.
Weyco's annual dividend rate of $0.92 per share represents a dividend yield of 2.9%. This is significantly higher than the 2% average dividend yield of the S&P 500 Index. Weyco's business model is challenged right now, but the company is investing heavily for a return to growth, led by new sales channels. Weyco, as a small-cap company, has plenty of room for continued growth. With a share price that exchanges hands for a reasonable P/E ratio of about 17, Weyco is a reasonably valued stock. It also has high appeal to dividend growth investors, for its solid 2.9% yield and annual dividend increases.
Nick McCullum is a regular contributor to Real Money Pro specializing in dividend stocks and income investing. Click here to learn about this dynamic market information service for active traders and to receive Doug Kass's Daily Diary and columns from Paul Price, Bret Jensen, Nick McCullum, Peter Tchir and others.)
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