With the average dividend of the S&P 500 at 1.6%, investors in retirement may feel that there are few places to find safe income in the stock market, observes asserts Ben Reynolds, editor of Sure Dividend.

Retirees who live off investment income such as dividends might be tempted to reach for extreme high-yields from riskier investments. We believe that there are quality dividend stocks such as the Dividend Aristocrats, that offer safe and reliable income in retirement.

V.F. Corporation (VFC) has had a rough year, as the stock price is down ~40% year-to-date. But the company has a long history of riding out economic downturns, while raising its dividend for over 40 years in a row. With a 4.3% dividend yield, VF Corp is an attractive dividend stock for retirees.

Business Overview & Recent Events

V.F. Corporation is one of the world’s largest apparel, footwear and accessories companies. Its brands include The North Face, Vans, Timberland and Dickies. The company, which has been in existence since 1899, generates roughly $11 billion in annual sales.

On July 28th, V.F. Corp reported financial results for the first quarter of fiscal 2023. Revenue of $2.26 billion rose 3.2% beat estimates by $20 million. Adjusted earnings-per-share of $0.09 missed estimates by $0.05 per share. The North Face brand led the way for the quarter with 37% constant-currency revenue growth. Gross margin of 53.9% declined 260 basis points for the quarter, as inflation took a bit bite out of margins.

The company lowered its full-year forecast, now expecting adjusted earnings-per-share in a range of $3.05 to $3.15. This guidance implies 4% to 7% earnings growth for the full year, so it is clear the company should still grow EPS this year.

Dividend Safety & Expected Returns

This has been a difficult year for apparel manufacturers, as inflation has eroded profitability. However, V.F. Corp is able to continue growing revenue while remaining profitable, thanks to its industry-leading brands and global scale. These competitive advantages have allowed the company to raise its dividend for 49 consecutive years.

At the midpoint of the company’s guidance, adjusted earnings-per-share are expected to come in at $3.10 for the upcoming fiscal year. This means VFC stock is currently trading for a forward P/E of just 15.1. Over the past decade, shares of V.F. Corp have traded for an average price-to-earnings ratio of 21.5.

We view the stock as considerably undervalued, with a fair value P/E of 19. In addition, the stock has a 4.3% dividend yield, while we expect 7% annual EPS growth over the next five years. Total returns could reach 16.0% per year over the next five years for VF stock.

The dividend also appears highly secure. Using the company’s fiscal year guidance, with expected EPS of $3.10, the forward dividend payout ratio is approximately 64.5%. This is a comfortable payout ratio that provides sufficient financial cushion to pay the dividend, and provide annual dividend increases, even if earnings growth temporarily declines.

It is also noteworthy that VFC stock is currently offering a 10-year high dividend yield of 4.3%. As a result, the stock offers an attractive entry point for income investors such as retirees looking for a combination of a high dividend yield, and annual dividend increases.

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