This iconic name in clothing was on the verge of income immortality. But just months away from cementing itself as a "king," management decided to pull their company out of the race.
Investors cheered the decision. The stock shot up in after-hours trading.
But here at Health & Wealth Bulletin, we were not as thrilled.
VF Corp (VFC) used to be one of our favorite stocks. It's a giant in the apparel industry, owning many well-known brands such as The North Face, Timberland, Vans, and Dickies.
But the reason we loved VF Corp so much was because of its dividend.
VF Corp started upping its dividend payments in the 1970s. And every year since then, the annual payment has increased. Sometimes VF Corp didn't increase the payout much, but that doesn't matter.
Until recently, the company boosted its payments for 49 consecutive years. And that's a truly impressive feat.
Since 1970, there have been seven recessions. That means the company has been able to give more cash away through just about every economic environment. This is also a time frame that includes the 2008 financial crisis – one of the worst economic disasters of all time. VF Corp increased its dividend nearly 2% in 2008.
Dividends aren't just cash in your pocket. They're also a sign of strength. Companies that increase dividends year after year can only do that if they have strong businesses with wide moats.
You've may have heard the terms "Dividend Achievers" and "Dividend Aristocrats" before. These are companies that have increased their dividend payments for 10 and 25 consecutive years, respectively.
There's one more tier of dividend status... and that's a "Dividend King." These are companies that have increased their dividends for at least 50 consecutive years.
As you can imagine, there aren't many companies with this prestigious title. There are fewer than 50 active Dividend Kings.
All VF Corp needed to do was hold its business together for just a few more months and then it could elevate itself to dividend royalty.
Management had other plans...
Struggling with their balance sheet, executives wanted to give the company more financial flexibility. So they announced the quarterly dividend would be cut from $0.51 to $0.30 per share.
Again, investors seemed to like this decision. VF Corp has a lot of debt on its books. Specifically, it has a net debt to earnings before interest, taxes, depreciation, and amortization ("EBITDA") ratio of 5.1. We consider a ratio over 4 dangerous. Long-term investors knew this move had to be made if the company was to stay financially afloat.
While long-term investors applaud VF Corp's dividend cut, we want nothing to do with the stock anymore.
As I like to tell my analysts all the time, once a dividend cutter, always a dividend cutter.
Who's to say the problems for VF Corp won't continue. Apparel, and retail in general, is a brutally competitive space. New brands come out every day. And folks are placing more emphasis on mission-driven brands nowadays.
VF Corp could absolutely have another bad year or two and reduce the dividend again. It still has a mountain of debt to take care of.
All we know is that the stock cannot be trusted anymore. Dividend strength and consistency matters when it comes to income investing.
While VF Corp is no longer on our radar when it comes to picking the best dividend stocks to own, there are plenty of consistent dividend stocks that my team and I have our eyes on...
If you've never been a serious dividend investor before, or even a general income investor, now is the time to consider it...
My team and I believe we are approaching a new enlightenment for income investors.
Yields are up across the board. There is a lot of safe income to be made, and we want a piece of it.
But here's the key thing: If you don't understand how to make this market work for you... you're going to get badly burned.
This morning, I shared what I think is the market's "best-kept secret" – a simple way for you to take the worry out of your investing and get paid.
It's a way to collect a nearly 8% yield today, plus capital upside. Not bad in down market.
If you've never understood interest rates... inflation... or the Federal Reserve... and why they all matter – you will after you watch my critical retirement update in plain, simple English.
What We're Reading...
- Something different: Boeing aircraft deliveries jump as airlines await new jets for travel rebound.
Here's to our health, wealth, and a great retirement,
Dr. David Eifrig and the Health & Wealth Bulletin Research Team
April 13, 2023