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Motley Fool: Want an 8.4% dividend yield?

Oct. 7, 2022 Updated Fri., Oct. 7, 2022 at 5:26 p.m.

Hanesbrands has plans to expand its activewear business Champion globally.  (Michelle Gustafson/Bloomberg)
Hanesbrands has plans to expand its activewear business Champion globally. (Michelle Gustafson/Bloomberg)

You’d think that an economic downturn wouldn’t prevent consumers from replacing their worn-out underwear, but you would be wrong. So wrong, in fact, that the “men’s underwear index” is often cited as a recession detection mechanism. When sales of briefs and boxers start to tumble, a recession is likely in the cards.

Hanesbrands (NYSE: HBI) is one of the biggest players in the underwear market, and it’s already seeing its customers pull back. Innerwear sales were down 12% year over year in the second quarter, in part because of a ransomware cyberattack, which prevented the company from fulfilling orders. Even Hanesbrands’ activewear business, headlined by the Champion brand, suffered an 18% sales decline in the second quarter.

Hanesbrands stock has cratered this year; it was recently down nearly 60% year to date. That pushed up the dividend yield (the annual dividend amount divided by the stock price) – recently to nearly 8.4%. You can expect Hanesbrands’ profits to come under further pressure in our weakened economy, but it won’t stay weak forever; after all, consumers will eventually want new underwear and activewear. The company is also aiming to expand Champion globally.

With shares recently trading at a low price-to-earnings (P/E) ratio of 5.6, Hanesbrands looks like a great dividend stock buying opportunity for long-term investors.

Ask the Fool

Q. What does buying stocks “on margin” mean? – W.P., Fort Wayne, Indiana

A. It’s investing with borrowed money. Your brokerage may permit you to borrow funds with which to invest, charging you interest on the loan. But why would you do so? Well, to amplify your gains – but note that any losses will be amplified, too.

Here’s how it works: Imagine that your account has $10,000 worth of stocks in it, and you borrow $5,000 to invest in more stocks. If your stocks surge in value, you’ll have made a profit on that $10,000 – and the borrowed $5,000 will have made you more money, too. Yay!

But stocks don’t always go up, especially in the short term. And you’ll be charged interest for as long as you’ve borrowed money. If your portfolio drops in value, you’ll have lost money – and you’ll still owe that $5,000 (plus interest). Investing on margin is risky, especially in our current environment with rising interest rates. It can wipe out much of your portfolio if you don’t know what you’re doing – or are just unlucky. Fortunately, you can get quite rich investing in stocks without using margin.

Q. If I buy shares of a stock that’s going to split after its “date of record” but before the actual split, will I get the additional shares? – G.L., Saratoga, New York

A. Yup. Those who own shares on the date of record get the new shares. However, if the old shares are traded between the date of record and the date of the split, the right to the new shares goes with them. So whoever is holding those shares on the effective date of the split gets the new shares.

My dumbest investment

While a new investor, I fell in love with the idea of investing in ChargePoint Holdings. It had a huge share in a market – charging stations for electric vehicles – that was going to BOOM (just not right away, of course). I bought shares around the $28 mark, then doubled down when they rose a bit. I was up for a couple of days and thought, “This is too easy.” It was!

The shares began falling, and as I was a newbie, I couldn’t understand why. Finally, I panicked and decided to sell. I entered an order with my brokerage and confirmed it, forgetting that the default trade is “buy.” For 15 terrifying seconds, I owned over $35,000 of a plummeting stock. I was able to quickly sell, but not before losing about $3,000.

Fortunately, with the help of your philosophy, I’ve regained over half that loss. How could I speculate or day-trade with zero experience? The answer is that I couldn’t. Now I’m enjoying really investing for the first time. Thanks. – P., online

The Fool responds: Investing in ChargePoint wasn’t necessarily a dumb move – though, as you see now, the day-trading was. The company recently notched more than 123 million charging sessions and boasts a network of 200,000-plus charging ports in North America and Europe. It’s not yet profitable, but it’s growing briskly. You might still consider it as a long-term investment.

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