Figuring out whether a company's chart is pointing to strength can be a real challenge.
Real Money Columnist Paul Price has been looking at the performance of a specialty retailer to assess where it's going next.
Designer Brands (DBI), perhaps best known to customers for their retail chain DSW, has been doing well lately. The company’s stock price has climbed, recovering from a sharp drop in early March, and it recently announced that it would resume paying quarterly dividends.
Now Paul Price has his eye on it, writing that his goal for this stock is “north of $28 by this time next year.” But stocks fluctuate, and lots of companies gain share value over 30 days just to lose it all again a month later. What makes DSW different?
Three elements stand out to Price.
First, he writes, “I predicted they would restart quarterly dividends, and that has now happened. The annual rate was $1 per share in the two pre-covid years 2018-2019. It was prudently trimmed to 10 cents quarterly in early 2020 due to government mandated store closures.
So, "following a two-year hiatus, quarterly payouts are now reinstated at a nickel a share, with much higher rates on the horizon.”
As they say, the news you have is not the news you think you have. What’s important here is the trend. It isn’t that Designer Brands now pays a $0.05 dividend, or not just that. It’s that a company with a history of strong dividends has resumed paying them. This gives Price reason to think that now is a chance to buy into a strong dividend stock before it’s priced that way.
“The second piece of [good] news was management's raise in profit guidance for fiscal year 2022 (ends Jan. 28, 2023) to $1.80 - $1.90. The $1.85 mid-point would nicely exceed FY 2021's recently released $1.70 in adjusted earnings per share. GAAP came in at $2.” In other words, Designer Brands expects profits to grow year-over-year compared with 2021.
This correlates well with the third element of Price’s analysis. Long-term guidance expects EPS for this company to exceed $2.80 over the next five years.
So DBI’s history suggests a company that will resume paying strong dividends. Its current earnings suggest cash flow that could support those payments, and its long-term guidance suggest continued cash flow along those lines. Together these elements make for a potentially good investment to get in on early, according to Price.