Cherokee's Dividend
The Motley Fool Take

Cherokee (Nasdaq: CHKE) - the licensor, marketer and manager of various clothing names - has a depressed stock price, but its current valuation and outlook make it compelling.

Its business model involves buying clothing, footwear and accessory brands, and then letting someone else do the work of making and selling the merchandise. Cherokee's role in the process is to do almost nothing but sit back and cash the checks - oh, and mail out hefty dividend checks to its investors, too.

The knock against Cherokee historically has been that its business is too closely tied to Target. When Target struggles, as it's done lately, Cherokee must feel the pain. But that assumption may be outdated.

Cherokee transformed a mere 1.6 percent rise in royalty revenue into 11 percent earnings growth in its last quarter. Clothing sales through Target dropped 14.2 percent in Cherokee's third quarter, but higher royalty rates on those sales kept Target-sourced income basically level. Meanwhile, sales at Britain's Tesco chain zoomed 25 percent year over year, making that chain now the No. 1 revenue generator for Cherokee (at 42 percent of revenues). Other retail clients of Cherokee, including TJX, combine to make up the remaining 21 percent.

With its light business model, a dividend yield recently around 8 percent and significant revenues from abroad, Cherokee is worth considering.