American Eagle Outfitters Inc. (AEO), which operates as an apparel and accessories retailer in the United States and Canada, recently announced that it will award shareholders of record as of June 28, 2010, with a 10% hike in dividend. After paying 10 cents a share in the form of dividends for 12 consecutive quarters, American Eagle breaks the trend by boosting the quarterly dividend payment to 11 cents a share. The previous increase in the company’s dividend was on March 28, 2007.  A hike in dividend reflects American Eagle’s commitment to their shareholders to keep the dividend growing at a reasonably steady pace.
 
American Eagle also enhanced shareholder value by repurchasing 5.9 million shares, which had cost the company $96 million. The company still has 24.1 million shares left in its current repurchase plan.
 
One of American Eagle’s peers, Gap Inc. (GPS) with its intention to boost shareholder value recently announced a quarterly dividend payment of 10 cents a share. American Eagle’s current annualized dividend yield of 3.3% outpaces Gap’s annualized dividend yield of 1.8% and the dividend payout ratio of 53.45% is also higher than Gap’s 20.39%.  
Further, American Eagle commands industry leading net margins; its trailing twelve-month net margin of 5.20% surpasses the industry average of 0.95%. The above metrics amply illustrate American Eagle’s scope to justifiably increase its dividend yield and payout ratio.
 
American Eagle is rich in cash and is armed with cash and cash equivalents of $5.4 billion, further consolidating the fact that the company is in a strong cash position and has the ability to provide good value to its shareholders. We appreciate American Eagle’s effort to consistently enhance shareholder return even in times of a recessionary economy when other companies are struggling to remain competitive.
 
Our Take
 
Dividends and share buyback programs are making their returns this year after both slumped last year when companies hoarded cash in the wake of the financial crisis. We believe that the increase in dividend payment by the company depicts the fact that the company is in good shape and is well positioned for future growth.
Read the full analyst report on “AEO”
Read the full analyst report on “GPS”
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