1 Solid Dividend on the Rocks


Apparel retailer VF (NYS: VFC) has increased its dividend for the past 40 years , and this year is no exception. The company announced third-quarter results on Monday, announcing record-setting revenue, margins, and earnings . But the investors who haven't yet bought into VF are the real winners. Despite the strong report, the stock has fallen 4% since the announcement. As usual, Wall Street analysts missed the mark, and the correction gave investors an opportunity.

A strong third quarter
VF owns Lee jeans, Jansport backpacks, North Face outdoor wear, Timberland, and more than a dozen other fashion labels. So far this year, the company has generated 53% of its revenue through its outdoor segment, 26% through jeanswear, and the rest through a mix of other fashion lines. Last quarter, it used a surge in outdoor sales to drive a 2% increase in organic revenue. The company acquired Timberland in September last year, so total revenue was up 14%, when that new line is included.

Operating margin rose to more than 17% last quarter. That increase helped fuel a 23% increase in earnings per share, up to $3.52. Even stripping Timberland out from both years, the company would have posted a 14% increase in EPS. That's a strong quarter no matter how you look at it.

The company used the strong earnings to help increase its quarterly dividend by 21%, to $0.87 per share. It also updated its yearly earnings guidance, raising it $0.10 to $9.60. It's going to make an end-of-the-year push, focused on The North Face and its Vans shoe brand, to keep up the strong momentum it's built so far in 2012.

Investors and competitors
With all that good news, it seems investors should be champing at the bit to get in with VF. Earnings up, margins up, income up, plan for the rest of the year -- what's not to like? And once again, Wall Street is the answer. Analyst guidance had been even more spectacular, hoping for revenue of $3.17 billion , while VF delivered only $3.12 billion. But the company more than made up for the revenue "shortfall" by surpassing income estimates.

Looking at the competitive field, VF is well placed against its nearest rivals, Ralph Lauren (NYS: RL) and PVH (NYS: PVH) . Ralph Lauren owns the whole range of eponymous brands that line every department store and outlet mall. Last quarter, the company increased revenue by 4% and sales by 7%, citing strong retail sales, although same-store sales grew only 1% .

Substantially smaller in market cap, PVH owns brands such as Tommy Hilfiger and Calvin Klein, and it licenses merchandise for a number of other brands, including Michael Kors (NYS: KORS) . PVH has had an up and down year, but second-quarter results were strong, and the company recently increased its third-quarter guidance .

As per all retail, the three companies will be heavily reliant on holiday sales, though VF is well placed to carve out its own niche with The North Face, as neither PVH nor Ralph Lauren competes in that arena. If either VF or PVH has an exceptional season, I'll be on the lookout for another brand acquisition in the middle of next year.

The bottom line
Even with the pullback, I think VF is strongest of the three companies. With a trailing P/E of 19, it's near the industry average and the cheapest of the three. The North Face continues to be a strong performer and industry leader. I think the company is set to outperform on income over the holiday season, and I suspect it will also outperform analyst estimates as well, because of the marketing push at the end of the year.

To get all the details on three more dividend superstars, check out the Fool's special report on The 3 Dow Stocks Dividend Investors Need. The report explains why these companies are built for the long-haul, and why their especially valuable to dividend investors. Click here for your free copy while it's still available.

The article 1 Solid Dividend on the Rocks originally appeared on Fool.com.

Fool contributor Andrew Marder and The Motley Fool have no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.