Dividend stocks are everywhere, but many just downright stink. In some cases, the business model is in serious jeopardy, or the dividend itself isn’t sustainable. In others, the dividend is so low, it’s not even worth the paper your dividend check is printed on. A solid dividend strikes the right balance of growth, value, and sustainability.
Today, and one day each week for the rest of the year, we’re going to look at one dividend-paying company that you can put in your portfolio for the long term without too much concern. This isn’t to say that these stocks don’t share the same macro risks that other companies have, but they are a step above your common grade of dividend stock. Check out last week’s selection.
This week, I’ll show you why handbag and accessories maker Coach, Inc. (NYSE:COH) could make for a smart play over the long run.
An ongoing retail fail
The retail environment over the past five years has been about as consistent as I am when I’m playing cricket while intoxicated. There have been ample reasons for consumers to go out and make purchases, including exceptionally low lending rates, which have greatly reduced the APR percentage consumers pay on their credit cards, and deep discounts from retailers that don’t want to sit on unwanted inventory. Conversely, consumer spending habits are still tepid at best because of the expectation for higher taxes and a still slow-growth environment rife with high unemployment rates.
This was the plight of handbag maker Coach, Inc. (NYSE:COH) over the past two quarters as it struggled to get U.S. consumers to buy its products, as consumers deferred to cheaper or promotional items. In its January quarter, Coach, Inc. (NYSE:COH) delivered just 1% North American sales growth while international sales gained by 12%. By comparison, Michael Kors Holdings Ltd (NYSE:KORS) delivered 41.4% global same-store sales growth in its February quarter as it rapidly expands its square footage and relies heavily on its affordable image.
However, I had cautioned investors shortly after Coach, Inc. (NYSE:COH)’s big miss that its weakness would likely be only temporary as it has numerous factors working in its favor. Based on its quarterly results earlier this week, which sent shares higher by double-digits, I’d say that it’s well on its way to remedying its short-term problems. Sales in the third quarter improved 7%, thanks largely to a 7% boost in North American sales, and a 40% catapult in sales from China.
How Coach is head and shoulders above its peers
One prime aspect that helps set Coach, Inc. (NYSE:COH) apart from its competitors is its unwillingness to tarnish its brand with discounting.