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Why this Cheap, High-Yield Dividend Stock is a 'Strong Buy'

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Ethan Allen , not to be confused with cryptocurrency ethereum that also trades under ETH, is an interior designer, manufacturer, and home furnishing retailer that has gone on an impressive run in the last year. Investors might also be excited by its high dividend yield, low price, and strong Zacks Ranks.

Comfortable Stock

Ethan Allen, like many retailers labeled non-essential last year, was hit hard by the early coronavirus lockdowns. The company’s fiscal 2020 (period ended on June 30) sales fell 21%. The situation has changed completely since then, as the housing market booms. Beyond the coronavirus-boosted shake-up that saw home prices surge to a 14-year high in 2020, millennials are finally leading the market, which creates the possibility for sustained growth.

Alongside the housing market, U.S. consumers who have spent a year cutting back on travel and other expenses have created pent-up demand. The Retail-Home Furnishings space has thrived amid these conditions and it currently sits in the top 14% of our over 250 Zacks industries, alongside Williams-Sonoma (WSM - Free Report) , RH (RH - Free Report) , Tempur Sealy (TPX - Free Report) , and others.

 

In late April, Ethan Allen posted 18% sales growth and a massive jump in adjusted earnings for Q3 FY21. More importantly, the company’s executive team provided strong guidance despite global supply chain worries. Plus, the furniture maker’s balance sheet is strong, with no outstanding debt and faces fewer supply-side worries than some others, given its focus on manufacturing in North America.

ETH once again flexed its solid financial muscles when it announced on April 27 a special cash dividend in addition to its regular payment—it raised its regular dividend by 19% in November. The company’s current 3.61% dividend yield crushes the 30-year Treasury’s 2.33%, its industry’s 0.40%, and the S&P 500’s 1.33%.  

Ethan Allen’s dividend payout appears even stronger considering that ETH shares have soared 160% in the last year to outpace its highly-ranked industry. This run includes a 45% jump in 2021 to inch by its peers and crush the S&P’s 13%.

Ethan Allen stock has pulled back recently and now trades 12% below its May 10 highs at around $28 a share. ETH shares also sit about 20% under its 2016 levels and its below-neutral RSI levels of 43 gives it plenty of runway.

Despite its climb and outperformance, Ethan Allen trades at 11.3X forward 12-month earnings. This represents a discount to its industry’s 18.9X. More importantly, ETH trades roughly in line with where it has been the last several years.

Bottom Line

Zacks estimates call for ETH’s fiscal 2021 revenue to climb 16% to $684 million, with FY22 set to climb another 9% higher to $745 million, with FY22’s figure roughly matching where it was before the pandemic. Meanwhile, its adjusted EPS expected to skyrocket 337% this year to $2.27 a share, with FY22 projected to pop another 10%.

Ethan Allen’s strong bottom-line positivity helps it grab a Zacks Rank #1 (Strong Buy) right now, alongside its “A” grade for Growth and “Bs” for Value and Momentum in our Style Scores system. 

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