Designer Brands (NYSE: DBI) is a retail company with over 500 physical locations under the name DSW, specializing in name brand footwear and accessories. The company also owns several private labels and sells directly to consumers through an e-commerce platform. The consumer discretionary stock is down 65% from its all-time high in 2013 and 33% year-to-date, which could signal an interesting entry point, assuming its fundamentals are stable.
Designer Brands is paying a 6.04% dividend yield, which, in its peer group, is only approached or exceeded by Gap (NYSE: GPS) at 5.78% and L Brands (NYSE: LB) at 6.98%. None of the other major apparel stores deliver a dividend yield above 5%. However, Designer Brands has a higher dividend payout ratio, at 1.45, than Gap's 0.4 or L Brands' 0.87. That means that earnings or cash flow have to increase substantially for the company's dividend yield to be sustainable over the long term. It certainly casts doubt on the likelihood of dividend growth for the foreseeable future, which is not a bullish signal for any investors employing the dividend discount model for valuation.
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