CARTER'S INC (NYSE:CRI): A High-Yield Dividend Stock with Strong Financials and Growth Potential

Dividend investors frequently look for stocks that provide a steady income stream while ensuring financial stability and profitability. A method to find these stocks involves using a structured screening process that identifies companies with strong dividend traits, solid earnings, and sound financial positions. The "Best Dividend Stocks" screen on ChartMill follows this approach, picking stocks with a ChartMill Dividend Rating of 7 or higher, along with a Profitability Rating of at least 5 and a Health Rating of 5 or above. These standards help confirm that the chosen firms not only offer appealing dividends but also possess the financial stability to maintain and increase those payments in the long run.

CARTER'S INC (NYSE:CRI) emerges as a strong option for dividend investors under this screening method. The company, a top seller of children’s clothing under brands such as Carter’s and OshKosh B'gosh, displays multiple strengths that match the strategy’s needs.

Dividend Performance

The main draw of CRI for income-seeking investors is its solid dividend record:

• High Dividend Yield: At 10.75%, CRI’s yield is well above the industry average (3.70%) and the S&P 500’s 2.35%, making it a appealing choice for those prioritizing income.
• Steady Dividend Growth: The firm has raised its dividend by an average of 16.75% yearly over the last five years, showing dedication to rewarding shareholders.
• History: CRI has distributed dividends for 10 years or more, offering a level of dependability.

Still, investors should be aware that the recent 32% drop in CRI’s stock price has pushed the yield higher. While this may present a buying chance, it also calls for caution—dividend reliability should be checked against the company’s earnings and cash flow.

Earnings and Financial Stability

Apart from dividends, CRI meets the screen’s earnings and stability benchmarks, which are vital for long-term dividend security:

• Earnings: With a Return on Equity (ROE) of 23.26% and a Return on Invested Capital (ROIC) of 12.72%, CRI performs better than many competitors in the apparel sector. Its operating margin of 8.95%, though slightly lower, stays competitive.
• Financial Stability: CRI has a solid balance sheet, with an Altman-Z score of 3.14 (showing low bankruptcy risk) and a current ratio of 2.56, indicating enough liquidity for short-term needs. The company has also decreased its share count over the past five years, a positive for shareholder value.

Valuation Factors

CRI’s valuation metrics add to its attractiveness:

• The stock trades at a P/E ratio of 4.64, much lower than the industry average (35.40) and the S&P 500 (26.82), implying it is heavily undervalued.
• Its Price/Free Cash Flow ratio is also better than 94% of industry peers, supporting the argument for its low valuation.

However, investors should balance these positives with the company’s falling earnings and revenue growth, which could limit future dividend hikes. Analysts predict earnings to shrink by 24.22% yearly in the near term, a trend that requires attention.

Final Thoughts

For dividend investors, CARTER'S INC offers a balanced yet interesting case. Its high yield, consistent dividend growth, and strong financial position fit the "Best Dividend Stocks" screening standards. Yet, the recent price drop and earnings struggles emphasize the need for deeper analysis. Investors should determine if these challenges are short-term or reflect larger problems.

Those curious about other high-quality dividend stocks can explore the Best Dividend Stocks screen for more options that meet similar criteria.

Disclaimer: This article is not investment advice. Always conduct your own research or consult a financial advisor before making investment decisions.