CARTER'S INC (NYSE:CRI): A High-Yield Dividend Stock with a Mixed Outlook

When building a dividend portfolio, investors often seek a balance between yield, sustainability, and financial stability. One method involves screening for stocks with a high dividend rating, ensuring they also maintain decent profitability and financial health. This approach helps identify companies capable of sustaining and potentially growing their payouts over time, rather than simply chasing the highest yields, which can sometimes signal underlying financial distress. CARTER'S INC (NYSE:CRI) recently surfaced using such a strategy, meeting key criteria that may appeal to income-focused investors.

The standout feature of Carter’s is its notable dividend yield, currently at 10.08%, which significantly exceeds both the industry average of 3.63% and the S&P 500’s average of approximately 2.36%. This high yield is supported by a strong history of dividend growth, with an annualized growth rate of 16.75% over the past five years, and a reliable track record of payments spanning at least a decade. These factors are central to the screening strategy, as consistent growth and longevity reduce the risk of sudden dividend cuts and reflect management’s confidence in the company’s cash flow stability.

However, a high yield alone isn’t sufficient—sustainability matters. Here, Carter’s presents a mixed picture. The payout ratio sits at 72.12%, which is above the ideal threshold and raises some concern about long-term sustainability, especially since earnings are projected to decline. This is where the screen’s emphasis on decent profitability and health provides crucial context. Carter’s profitability rating of 6 reflects capable operations, with a return on equity of 15.55% outperforming 74% of industry peers, and solid historical cash flow generation. These profitability metrics suggest the company has underlying operational strength that may help buffer against near-term earnings pressure.

Financially, Carter’s holds a health rating of 5, indicating moderate stability. The company maintains a reasonable debt-to-free-cash-flow ratio of 3.55, suggesting it could repay its debts within a few years using current cash flows—a positive sign for dividend sustainability. Liquidity is adequate, with a current ratio of 2.20, though some peers show stronger quick ratios. Importantly, the company has been reducing its share count over the years, which can be a shareholder-friendly signal. These health and profitability factors align with the screening objective of avoiding companies with weak balance sheets or erratic earnings, which are more likely to reduce dividends during downturns.

Valuation also plays a role in the assessment. Carter’s trades at a P/E ratio of 5.15, notably below industry and broader market averages, which may appeal to value-conscious dividend investors. However, this discount coincides with expected declines in revenue and earnings, highlighting the importance of the screen’s multi-criteria approach. Without the backing of decent profitability and health scores, such a valuation might simply reflect market skepticism rather than opportunity.

For a detailed breakdown of these metrics, readers can review the full fundamental analysis report.

Carter’s represents a potential candidate for dividend investors who prioritize high current income and have some tolerance for cyclical challenges in the apparel sector. Its impressive yield and history of dividend growth are tempered by a elevated payout ratio and near-term earnings headwinds, but the company’s operational profitability and reasonable financial health provide a foundational cushion. As with any investment, due diligence should include industry analysis and consideration of macroeconomic factors affecting retail and consumer discretionary segments.

For those interested in exploring similar dividend stock ideas, the Best Dividend Stocks screener offers a dynamic list of companies meeting these criteria, which can be further customized based on individual risk and return preferences.

Disclaimer: This article is for informational purposes only and does not constitute investment advice. Investors should conduct their own research and consider their financial situation and risk tolerance before making investment decisions.