Income is a big part of investors' returns. Stocks, mutual funds and fixed income ideas in this column are featured because they are relatively solid in their ability to pay dividends or interest. We're giving income investors a resource to start their research for investments that give better yields with lower risk.

August 11, 2010 - Foot Locker, Inc. (FL-NYSE) operates as a retailer of athletic footwear and apparel. The company has two segments, Athletic Stores and Direct-to-Customers.

The Direct-to-Customers group, through its affiliates, sells athletic footwear, apparel, equipment, team licensed, and private-label merchandise through catalogs and Internet Websites. As of March 9, 2010, Foot Locker, Inc. operated 3,500 stores in North America, Europe, and Australia. It also franchises Foot Locker stores in the Middle East and the Republic of Korea. As of January 30, 2010, the company had a total of 22 franchised stores. Foot Locker, Inc. was founded in 1879 and is based in New York, New York.

That last statistic surprised me. This company has been around a long time. While recent sales decreased ($5.437 billion in 2007, $5.237 in 2008, $4.854 billion last year), it looks like this year the trend is for higher revenues and continuing into 2011. Foot Locker seems to be one of the industry's stronger performers. Look for $4.99 billion in sales this year, then $5.06 billion in 2011.

Earnings should follow the same pattern, with a rebound expected by 15 analysts. Last year's final number was 54 cents a share for earnings. This year, consensus is for 87 cents. Next year, expect $1.02. Next quarterly earnings are due on August 19. Look for 3 cents a share compared to 0 last year in the second quarter (fiscal year ends in January). For the third quarter, expect 17 cents vs 10 cents last year in the third.

What's the secret for this retailer? Part of it goes to better inventory management. At the beginning of the year, inventory was low so merchandise had to be shipped in constantly, making offerings fresh. Another part of its success comes from broader merchandise appeal, attracting new, more diverse customers. Combined, these two factors have kept clearance sales and promotions at a minimum, helping to raise average selling prices.

The dividend is 60 cents a share, up from 58 cents in 2009 which was 50 cents in 2008 and 36 cents in 2007. Can you spot the trend? With earnings improving this year, and most likely next, the odds seem good the dividend will be raised again in 2011. At a price of $12.50, the yield is 4.80%. It takes about 75% of earnings to pay it.

The main driver for this retailer remains shoes. And those are selling well. In the first quarter, shoe sales were up 5% for athletic shoes compared to the first quarter last year. There's been a shift in preference for men's fashion, moving from casual and lifestyle shoes to running. Women are buying more "toning" shoes. And the all important basketball shoes should show their usual strong performance in the second half of the year as Team USA competes and the NBA season gets underway.

More numbers: Market Cap is $1.95 billion. Trailing P/E is 27.59 but Forward P/E is 12.25. Price to sales ratio is .40. Price to book is 1.00. Book value is $12.49. Operating margin for the last 12 months was 3.21% while Profit margin was 1.44%. Return on equity was 3.59% and Return on assets was 3.33%. Total cash is $616.00 million or $3.94 a share. Total debt is $137 million or about 7% of capital. Current ratio is 3.38. Beta is 1.02. Therea re 156.21 million shares outstanding with a Float of 153.59 million. Institutions own 95.70% of the Float.

Income investors will like all the cash the company has. It gives management lots of flexibility to raise the dividend, buy back stock or acquire other companies. With only a small amount of debt, it also has room to borrow, if needed. While this is a retail stock, it's doing better than most. This year's earnings may be the beginning of new trend, especially if the economy picks up and consumers open their wallets wider.

- Company Web site: www.footlocker-inc.com

- Ted Allrich