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Why Shares of Tailored Brands Are Soaring on Monday

Lou Whiteman, The Motley Fool

What happened

Shares of Tailored Brands (NYSE: TLRD) were trading more than 10% higher as of 2 p.m. on Monday after the men's apparel retailer released information about its quarterly dividend payment. Dividend announcements don't normally produce significant share price spikes, but in this case, the declaration put to rest rumors that Tailored Brands' payout might be in jeopardy.

So what

Tailored Brands, owner of the Men's Wearhouse and JoS A. Bank chains, has been fighting what management called "significant headwinds" so far in 2019, and the company's shares have lost about half their value year to date. It's grappling with both short-term issues such as unfavorable foreign currency exchange shifts, and longer-term issues such as the trend toward business casual in the workplace, which has significantly reduced demand for suits, sports coats and the like.

A man posing in a suit.

Image source: Getty Images.

Given those headwinds, some on Wall Street had been speculating that Tailored Brands might reduce its dividend to preserve liquidity. Monday's announcement that the dividend would hold steady at $0.18 per share put those concerns to rest.

It's worth noting that the dividend in question will be payable Sept. 27, meaning the board made its declaration three months ahead of payout. The previous dividend was announced in April, payable two months later in June. The early announcement could be read as either the board responding to the speculation, or as a specific statement about the financial health of the company.

Now what

Tailored Brands shareholders took a huge sigh of relief when they got this dividend announcement, and the company's 11.5% yield is understandably enticing. But even if the September payout is safe, there are still serious questions about the long-term health of the company, and its prospects for growth.

Investors should be careful buying into this rally.

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Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.