Plenty of stocks have seen their share prices fall significantly since the beginning of 2022. When a stock that pays a dividend falls in share price, its yield — the annual payout measured as a percentage of the value of the stock — rises. And if management continues to increase the payout while share prices are falling sharply, the result can be a historically high dividend yield for the company.
Let’s look at two stocks that currently have historically high dividends and discuss whether this makes them good investment opportunities.
1. Camping World: A specialty retailer with an eye-popping dividend yield
Camping World Holdings (NYSE: CWH) stock has seen its price drop by about 33% in 2022 to about $27 per share. Meanwhile, the recreational vehicle retailer recently raised its quarterly cash dividend by 25% to $0.625 per share, resulting in a yield of about 9.25%. For comparison, the average yield of the S&P 500 currently is 1.4%.
Anytime a stock is paying such an outsized dividend, investors should be concerned that management might cut its payouts in the future. However, beyond the fact that management in late February announced a boost to the company’s dividend, Camping World is growing its revenue and net income — indicators of the health of the business.
Specifically, the specialty retailer grew revenue by roughly 27%, from $5.4 billion in 2020 to $6.9 billion in 2021. And it grew diluted earnings per share by about 96%, from 3.09 in 2020 to $6.07 in 2021.
Another metric that indicates a company’s ability to maintain or grow its dividend — which Camping World has done since 2017 — is its debt-to-equity ratio, which weighs its total liabilities against shareholders’ equity. Average debt-to-equity ratios vary by industry, but, in general, higher ratios indicate riskier businesses. As of the end of 2021, Camping World had a debt-to-equity ratio of 17.69, which is considerably higher than the average of 1.5 among S&P 500 companies. However, the company’s debt-to-equity ratio is improving, has managed to get through some elevated levels it had during the height of the pandemic, and now hovers near the average it maintained since it became a public company in 2016.
2. Hasbro: A legacy toymaker reaches a historically high yield
Hasbro (NASDAQ: HAS) stock, too, has performed poorly in 2022. Its price is down about 17.1% year to date, despite a recent dividend raise by management. As a result, Hasbro currently has a dividend yield of 3.23%, which is about 0.5 percentage points higher than its five-year average of 2.75%. Notably, the recently announced 3% increase to the dividend was the company’s first hike since the pandemic began. The move could be a signal of management’s confidence in the business. On Hasbro’s most recent earnings call, CFO Deb Thomas noted the “current year outlook support[s] our view to growth and value creation over the coming years.” Prior to 2020, the company had raised its quarterly dividend every year since 2004.
As of the end of 2021, Hasbro’s debt-to-equity ratio was 2.28, or about 0.8 points higher than the S&P 500 average. The company is addressing the issue as it put more than $1 billion toward paying down its long-term debt in 2021, bringing its debt-to-equity ratio down from 2.67 in the process. Management said that it plans to continue withdrawing debt in 2022 and 2023.
Still, an attractive dividend or not, Hasbro’s stock is down about 14% over the past five years. The company is in the midst of a transition away from licensing its intellectual property to other media companies and toward producing movies and television shows based on its in-house brands. Even with some early success in this area — between 2016 and 2021, its entertainment segment revenue rose by 276% to $1 billion — the company faces challenges, including a proxy fight with an activist investor and the looming loss of the licensing rights to Disney Princess toys in 2023.
What’s the bottom line?
While investors should generally be wary of dividend stocks with high yields, companies with solid histories of payout growth like Camping World and Hasbro might be worth considering as it’s unlikely that either company will reverse course anytime soon. Still, watch whether each company can continue growing its revenue and lowering its debt-to-equity ratio in 2022. If both companies show success in those areas, their stocks could bounce back from their slow start to the year.
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Collin Brantmeyer owns Camping World Holdings and Hasbro. The Motley Fool recommends Camping World Holdings and Hasbro and recommends the following options: short March 2022 $32 puts on Camping World Holdings. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.