Macy’s vs. American Eagle: One Dividend Is Growing, the Other Is Standing Still

Macy’s (NYSE:M | M Price Prediction) and American Eagle Outfitters (NYSE:AEO) both beat second-quarter estimates in September, and IEEPA tariff refunds helped both of them. Take the refunds out and you have two different retailers. Macy’s is a department store chain leaning on luxury and beauty. American Eagle sells jeans, intimates and activewear to younger shoppers. For income investors, the real question is whose dividend survives a soft consumer.

Bloomingdale’s Lifts Macy’s While Aerie Rescues American Eagle

Macy’s posted adjusted EPS of $0.63 against a $0.37 consensus. Without the $98M refund, EPS would have been $0.40, so the beat holds up even without the windfall. Bloomingdale’s comps rose 11.3% and Bluemercury added 6.2%. Wealthier shoppers are carrying the portfolio. Chief executive Tony Spring said “the investments we’re making are driving results across our portfolio.”

American Eagle’s GAAP EPS of $0.79 included a $161M refund benefit. Merchandise margins deleveraged 330 bps, and shares fell about 13% after the report. Aerie and OFFLINE comps grew 19%, while namesake AE comps slipped 1% because the women’s business lagged. CEO Jay Schottenstein admitted the company remains “focused on opportunities to drive greater consistency in the women’s business.”

Five Straight Raises Against a Payout That Stalled

Since restoring its dividend in 2021, Macy’s has raised it every year, from $0.15 to $0.1915. The run is short, though, because the 2020 to 2021 gap breaks the longer record. The annual payout comes to about 36% of the low end of its $2.15 to $2.35 EPS guidance. That leaves plenty of room.

American Eagle cut its dividend from $0.18 to $0.10 in 2023 and has paid $0.125 ever since. Its payout looks lean at about 26% of trailing EPS, but refunds inflate that EPS. Capex guidance of $250M to $260M also takes a large share of cash flow.

Holiday Traffic Decides Who Keeps Paying Comfortably

Macy’s raised guidance for full-year comps to +1.0% to +1.5% and plans to reinvest about $0.18/share in the second half. That’s a modest target, and modest targets are easier to hit. American Eagle’s inventory, which rose 14% at cost, bears watching. If holiday sales disappoint, that inventory becomes markdown risk. Q3 operating income guidance of $110M to $115M with flat gross margin leaves little room.

Why I Trust Macy’s Dividend More

On income measures, Macy’s appears to be stronger. It pays the higher yield and covers its dividend more than five times over with free cash flow. Five straight increases show management’s intent, and its wealthy Bloomingdale’s customers tend to hold up better when budgets tighten. American Eagle’s Aerie engine is real, but its dividend has stayed flat since a cut, and its core women’s business is still unsteady (the kind of setup our free dividend trap guide flags before a yield gets reset). I would revisit that view only if AE women’s steadies and inventory gets back in line with sales.

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