Coach Inc: Bag That Dividend

Those who know me know that I have no sense of fashion at all. That said, I flatter myself that I do know a good stock when I see one, and I think Coach (COH) is such an investment. Although the shares have dropped in price recently, they are still up 8% over the past twelve months. In my view, there’s more to come, and investors would be wise to climb aboard. I’ll go through my reasoning below by focusing on the financial highlights of the last few years, and I’ll then go through the likely dividend changes over the next few years. I’ll conclude with a discussion about relative valuations on this stock.
Financial Snapshot When you review the financial history of Coach, it becomes obvious fairly quickly that this is a relatively volatile business. The firm has gone through wild swings in both revenue and net income, reflecting the fact that it serves a market that is a bit unpredictable. For my part, I like the fact that the brand represents accessible high fashion, as the market for their product is potentially much larger.
Although the dividend has been stagnant for the past few years, over the long term (or at least from 2009 when the company started paying dividends), they’ve grown at a CAGR of about 42%, rewarding earlier shareholders quite handsomely. It would be ridiculous to conclude that this level of growth will happen again, but there’s obviously a culture of growing dividends in place. I estimate a reasonable growth rate of 5%... Read more

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