Retailer Pays 4.2% Yield and a Decade of Dividend Hikes

A retail company has rewarded its investors with a decade of dividend hikes and currently offers a dividend yield of 4.2%.

While the share price of Finish Line, Inc. (The) (NASDAQ:FINL) is not showing any clear sign of a trend reversal of long-term appreciation, speculation of a buyout could boost the share price high enough to entice some risk-tolerant investors.

The company just paid its most recent quarterly dividend in early September and the next ex-dividend is expected sometime in late November, with a pay date to follow in mid-December 2017.

Finish Line, Inc (The) (NASDAQ:FINL)

Founded in 1976 and based in Indianapolis, The Finish Line, Inc., operates as a specialty retailer of athletic shoes, apparel and accessories in the United States and Puerto Rico.

The company offers athletic shoes, as well as an assortment of apparel and accessories from a variety of athletic and sports brands like Nike, adidas, Under Armour, Puma, etc. Additionally, the Finish Line operates as the in-store and online retailer of athletic shoes for Macy’s Retail Holdings, Inc., Macy’s Puerto Rico, Inc. and Macys.com, Inc. As of September 2017, the company operated a total of 950 branded shops inside Macy’s department stores and stores located in shopping malls throughout the United States and Puerto Rico.

While the company’s share price endured a steady downturn over the past two years, the dividend distributions kept rising and currently yield 4.2%. The current $0.44 annual dividend payout – paid as a $0.11 quarterly distribution – is only the last in a series of 10 consecutive annual dividend boosts. Compared to the company’s 2% average yield for the past five years, the current 4.2% annual yield is 110% higher. Over the past decade, the annual dividend payout rose at an average annual rate of more than 24% per year, which resulted in an almost nine-fold increase to the total annual dividend distribution.

Compared to the average dividend yields of its industry peers, The Finish Line, Inc. is performing significantly better. The company’s current dividend yield is 115% above the 1.95% average yield for the Services sector and 142.45% above the straight average yield for all the companies in the Specialty Retail segment.

Unlike the consistently rising income from the long-term dividend hikes, the company’s share price has fallen more than 60% over the past two years. Between its 52-week high of $24.50 in early December 2016 and the 52-week low closing price of $8.33 on August 1, 2017, the price fell 66%. However, since the August low, the price inched slightly higher and closed on September 26, 2017, at $11.08, which is 33% higher than the 52-week low from August 2017.

It is unlikely that the Finish Line’s share price will make a miraculous recovery on its own in the near term. Strategic Resource Group’s Managing Director Burt Flickinger, who is credited with creating the term “retail ice age,” discussed his outlook for retail in a recent interview at the Fox Business Network and indicated that the current supply of retail space exceeds the customer demand by 300%. He added that the oversupply will not be resolved before 2020.

However, Barron’s reported that Sam Poser, Susquehanna Financial Group’s Footwear & Apparel Analyst, and his team upgraded FINL from Neutral to Positive on September 13, 2017, and set a $12 target price based on an estimated 75% possibility that FINL could be acquired in the near future. Mr. Poser stated:

“We believe that the poison pill is in place to force a conversation with Sports Direct International (SPD) and prevent a change of control through ‘open market accumulation (of FINL stock) or coercive takeover tactics,’ especially as the FINL stock price is in close vicinity of its five-year low. Our $12 price target reflects a 75% probability that SPD acquires FINL at ~$13.30 and a 25% probability that FINL remains a standalone business and the stock goes to $8.”

I must emphasize that the outlook for the Finish Line’s share price is not promising at this point and that there are plenty of stock picks that offer lower-risk potential for long term total returns. However, a risk-tolerant investor who believes that the acquisition mentioned by Mr. Poser is likely, might be intrigued with the potential payback, while collecting a 4.2% dividend income on the initial investment.

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