Published on January 13th, 2023 by Quinn Mohammed
Hanesbrands Inc. (HBI) has paid the same dividend since 2017, following four years of dividend increases. In 2017, Hanesbrands shares peaked at a price of $25.67, but now shares trade for just about $8.30.
This significant markdown in the share price, along with the consistent dividend, has resulted in a massive increase in Hanesbrands’ dividend yield. The company now boasts a high dividend yield of 7.2%. To determine whether Hanesbrands can sustain this dividend, one must delve into the company’s financials.
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In this article, we will analyze the apparel manufacturer Hanesbrands (HBI).
Hanesbrands is a leading marketer of everyday basic innerwear and activewear apparel. It sells its products under well-known brands, including Hanes and Champion, in America, Europe, Australia and the Asia-Pacific region.
On November 9th, 2022, Hanesbrands reported third quarter 2022 results. For the quarter, net sales decreased 7% year-over-year to $1.67 billion due to a strong dollar and soft consumer spending amid high inflation.
The company suffered a 45% decline in earnings per share, as high cost inflation and deep discounts as a result of high inventories weighed on results. EPS came in at $0.29, compared to $0.53 in the same prior year period.
Hanesbrands lowered 2022 guidance for a second quarter in a row. The company expects a 9% reduction in revenue (compared to a 2% decline previously) and adjusted earnings-per-share of $0.95 to $1.02 (compared to $1.11 to $1.23 previously). As a result, the company is on track to post its lowest earnings per share in the last nine years.
On January 12th, 2023, however, Hanesbrands announced it expects that Q4 2022 net sales came in above the top end of their previously provided outlook range, and that adjusted operating profit came in at the midpoint of its provided outlook range.
Hanesbrands has a long-term growth plan, which revolves around growing the Champion brand globally, growing Innerwear sales, gaining younger consumer customers, and improving online sales.
The company’s Hanes Originals innerwear products are aimed at younger consumers, as the company wants to catch these clients while they’re young to keep them on their brand. Additionally, Hanesbrands has released product lines such as Hanes Total Support Pouch with X-Temp, Hanes Retro Rib, and Maidenform, all aimed at younger consumers.
Hanesbrands also has its Full Potential global supply chain initiative, aimed at improving the company’s supply chain, with improved speeds and expanded margins, in the pursuit of improved cash flow generation. The company is consolidating to fewer, larger distribution centers in the U.S, and increasing its use of automation.
On the downside, however, Hanesbrands has spent $2.9 billion on acquisitions in the last seven years, and while the company continues to integrate these acquisitions, the high debt load weighs on results due to high interest expense.
Based on the low comparison base for 2022, we expect Hanesbrands to grow EPS at a 10.0% average annual rate over the next five years
Hanesbrand possesses some competitive advantage in owning its own manufacturing network, as it grants it an advantage in sourcing due to better costs and speed for high-volume cotton-based products.
Additionally, the company’s well-known Champion brand can also be considered a competitive advantage. However, the company is engaged in a highly competitive business, which prevents it from achieving high margins or growing very quickly.
As previously mentioned, Hanesbrands took on large amounts of debt in recent years, and the company’s debt-to-assets ratio has risen from 70% in 2019 to 90% today. As a result, Hanesbrands’ interest expense now consumes 19% of the company’s operating income.
Hanesbrands is not a company which possesses recession resiliency. During recessions, consumers reduce their discretionary spending, which includes the money they spend on apparel, negatively impacting companies such as Hanesbrands.
Hanesbrands pays a $0.60 annual dividend, which it has paid since 2017. At the current share price, HBI has a high dividend yield of 7.2%, which is massively above its nine-year average yield of 2.5%.
Based on our EPS estimate of $0.98 for 2022, the company is forecasted to pay out about 61% of earnings in dividends. While this isn’t a dire payout ratio, it is much more than the company has paid out in the past. Currently, the dividend does not appear to be in danger.
We currently anticipate strong earnings growth from this low comparison base and since we don’t expect Hanesbrands to increase the dividend over the next five years, the payout ratio should moderate a fair bit.
Hanesbrands is a leading marketer of everyday basic innerwear and activewear apparel. It sells its products under well-known brands, including Hanes and Champion.
The company’s share price has taken a plunge since 2017, but Hanesbrands has paid the same dividend without fail. As a result of a lower share price, but consistent dividend, Hanesbrands is now a high-yielding stock, with a dividend yield of more than 7.0%.
While the payout ratio does not appear to set the company up for a dividend cut today, Hanesbrands must execute successfully on their growth plans to reduce the dividend payout ratio in the coming years.
If you are interested in finding high-quality dividend growth stocks and/or other high-yield securities and income securities, the following Sure Dividend resources will be useful:
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- MLPs: List of MLPs and more
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- BDCs: List of BDCs and more