Making sense of retail. Retail is a tricky sector. Particularly after the high-profile bankruptcy of the iconic department store operator Sears, the pressures put on legacy retailers amid changing consumer tastes and digital competition makes…
Making sense of retail.
Retail is a tricky sector. Particularly after the high-profile bankruptcy of the iconic department store operator Sears, the pressures put on legacy retailers amid changing consumer tastes and digital competition makes it hard to pick winners from losers. However, dividend investors don’t necessarily need to find a retail stock that is setting the world on fire with growth or e-commerce innovation. Income investing focuses instead on reliable payouts from companies with a stable outlook, and there are a bunch of publicly traded store operators with great brands and sales trends. Here are nine retail stocks with big yields that are worthy of a look.
With a market capitalization of about $37 billion and total revenues that top $75 billion annually, big-box store Target is among one of the most entrenched retailers in the U.S. That adds up to tremendous stability, and reliable dividends. TGT stock has increased its payouts for 47 consecutive years after its latest bump in mid-2018. While it can be hard for a corporation this size to find growth, Target is indeed growing at a low single-digit rate thanks to a continued push toward e-commerce options and a multiyear plan to develop free two-day shipping to tap into digital sales.
Another retail powerhouse, Best Buy is one of the biggest names in electronics. While the rise of e-commerce created problems for its brick-and-mortar locations, BBY right-sized through store closures and focused on competitive prices that have kept it relevant with consumers. Best Buy is a bit of a cyclical stock since consumers are more inclined to buy a new TV or video game platform during an economic upswing. However, its scale is tremendous with a network of more than 1,500 stores — and thanks to the cost-cutting, all of those locations are strong performers. This supports a reliable dividend that remains roughly one third of total earnings.
Retail stocks as a group are no stranger to e-commerce pressures, but Kohl’s made an ally out of Amazon.com (AMZN), forging a partnership that launched in 2018 and expanded to roughly 100 stores that accept on-site returns from the internet giant. Some observers expected the move to result in cannibalized sales, but in fact there’s been a nice increase in foot traffic. With this “if you can’t beat ’em, join ’em” approach to Amazon, KSS has been a bit more insulated than its peers — and with a payout that is generous but still less than half total earnings, this stock has decent long-term dividend potential.
The stores under Gap’s management represent some of the most dominant at American malls. And while the company may not have figured everything out in an internet age, its brand variation adds stability other retailers can’t match. Old Navy is decidedly a discount brand, with price as the key selling point, while Banana Republic is a premium brand with upscale taste and prices. This wider segmentation adds reliability to the generous dividend payout. Furthermore, short-term trends seem to be looking up after a strong earnings report in November that showed a 7 percent rise in year-over-year revenue and strong comps at both Old Navy and Banana Republic.
There have been some headaches at Macy’s, including news in January that the retailer would have to reduce its full-year forecast for fiscal 2018. However, it’s not like this big brand is going anywhere with its $8 billion market value — and a stellar operating cash flow of $1.5 billion in the fourth quarter. This not only fuels a nice dividend, but ensures Macy’s can make the necessary investments in updating stores and servicing existing debts. The company boasts an impressive $740 million cash on hand and as a result has a much firmer foundation than other retail stocks.
Investors were bearish on Nordstrom at the end of 2018 after sluggish sales trends, particularly at its higher-end stores that ultimately drove down margins. The general consensus was that the retailer had gotten a bit ahead of itself, and as volatility and the fallout of the government shutdown caused general concerns about consumer spending in 2019, shares rolled back significantly. But JWN stock looks like it has stabilized and is a good investment once more. Expectations have been lowered, meaning a shock is less likely going forward, and dividends remain less than half of total earnings so the payouts are not in any danger.
Specialty retailer WSM has faced its share of pressures. However, with a strong brand and a focus on home goods and furnishings it has fared better than some of its competitors. The fact is dressers and kitchen tables are often easier to browse and buy in brick-and-mortar shopping experiences, and that has helped this company. And its high-end brands like Pottery Barn, West Elm and Rejuvenation also boast nice margins. With a dividend that is less than 40 percent of total earnings per share, WSM’s generous payout is safe from any short-term pressures. That should give dividend investors peace of mind in this retail stock.
Branded footwear retailer DSW has been on an uptrend since its 2016 lows. Part of its turnaround has been a focus on offering discount sales that appeal to price-conscious consumers. Adding to momentum has been the vertical integration of clothing designer and manufacturer Camuto Group for $375 million in 2018 to spur growth opportunities. Admittedly, that cash outlay makes DSW’s dividend less secure than some of the others on this list with big stockpiles and more significant cash flow. Payouts are about 60 percent of earnings so these dividends should persist and grow in the years ahead — particularly if the Caumuto acquisition pays off.
While this stock has burned some investors over the years, Bed Bath & Beyond is one of the top performers on all of Wall Street in 2019 with a gain of nearly 40 percent since Jan. 1 thanks in large part to a one-day pop on improved 2019 earnings and upbeat guidance for 2020. But beyond the short-term momentum, this $2 billion retail giant has strong operations and pays out a mere one third of its earnings through dividends. That means the yield is not just safe, but perhaps likely for further increases in the future if those rosy forecasts pan out.
Current yield: 4.2 percent
Retail stocks to buy now for income.
Here are nine publicly traded retailers that offer big dividend yields: