Dividend Investing In The Retail Sector

Retail sales have been exploding online increasing in market share seemingly every year since the Internet has become mainstream. Yet, despite this stunning growth online, brick and mortar retail locations still account for more than 85% of the $2.57 trillion retail market. By any measure traditional retail locations are not dead and these brick and mortar companies remain giants in their respective sector.

 

Among these retail giants is Nordstrom Inc. (JWN). Known mostly for their large and fashionable retail locations, JWN currently yields 1.90% with a moderately low payout ratio of 33.8%. Having a fairly long dividend history going back several decades it is the annualized dividend growth rate for JWN that is most impressive at 19.33%. That is some serious dividend growth. On the valuation side of things JWN has a current PE of 18.2 putting it in line with the market but well below its peers.

 

Next in the retail space is the owner of T.J. Maxx, Marshalls, HomeGoods among other branded retail stores, The TJX Companies, Inc. (TJX). TJX currently yields 1.30% with a low payout ratio of 22.2%. Like JWN, the most striking fact for TJX is its impressive dividend history. TJX has been raising dividends every year for over 17 years and has a ten year annualized dividend growth rate of 23.34%. Another rocket ship dividend booster. The current PE of TJX is 17.8 putting it in line with the market in general. Thinking about hopping aboard this dividend booster?

 

Better known for its retail stores that operate under the names Victoria’s Secret and Bath & Body Works, L Brands, Inc. (LB) currently yields 2.40% with a moderate payout ratio of 43.0%. Like the companies mentioned before, LB has an impressive dividend growth history with a ten year annualized dividend growth rate of 11.61%. LB is currently trading at a 18.5 PE which is in line with the market but lower than its five year average. Could this be a relative value in the market today with continued high annualized dividend growth?

 

Next, is a retail outlet that’s well known for its company slogan, “Ross Dress for Less.” Ross Stores Inc. (ROST) currently yields a fairly low 1.20% yield with an equally low payout ratio of 18.9%. However, this low current yield might not matter when looking the ten year annualized dividend growth rate of 27.91%. ROST might also present itself as a relative value in the market today with a PE of 16.7 putting it well below the S&P.

 

Finally, in the brick and mortar retail space I would like to mention V.F. Corporation (VFC). For those who are not familiar with VFC you are more than likely familiar with their brands: The North Face, Vans, Timberland, Jansport, Eastpak, lucy, Nautica, Wrangler and Lee jeans to name a few. They also supply officially licensed apparel products for the NFL and MLB and operate retail locations under some of their brand names. VFC currently yields 1.70% with a relatively low payout ratio of 34.0% which allows it room to grow its dividend. It has raised its dividend for over 40 years and has an annualized dividend growth rate of 9.72%. VFC’s PE currently rests at 22.6 which is low relative to peers but on the high side relative to the S&P.

 

As you can see from all the companies mentioned the current dividend yield offered is low. However, this low current yield is tempered by the fact that the dividend growth rate has been stellar and from a valuation perspective it seems that these particular retailers are in line with the S&P or even below making them all relative bargains in this high priced market.

 

Are any retail stores in your portfolio? What do you think of this market sector in general? On a side note, I have not discussed Target Corp. (TGT) in this article as many blogs have covered the stock at great lengths in June and was a very popular buy for many of the dividend bloggers.

 

Disclosure: Long VFC

15 thoughts on “Dividend Investing In The Retail Sector

  1. Hi DIvHut,
    A nice summary – I hold LB and they do like to pay special dividends on top of their ordinary ones. I like the company because of the strong Victoria’s secret brand name which has worked its way into popular culture.

    I’ve read several articles about ROST and TGT recently so they do seem to be popular right now.

    Best wishes!
    -DL
    Dividend Life recently posted…July Purchase – Consumer Defensive dividend stocksMy Profile

    • Hi DL,

      Thanks for sharing your opinion on LB. I agree with you regarding the very strong worldwide brand recognition LB has with Victoria’s Secret. I also happen to like TJX in the retail space too for their high dividend growth. Thanks for your comment!

    • Hi LAH,

      There are many retail sector dividend stocks to talk about and I just wanted to focus on the names in the article. There is no doubt that NKE has been a great, solid, long term stock as well. In fact, if I was looking to add a name to my portfolio in the retail space NKE would be on top. Thanks for the comment.

  2. That’s an impressive list of retail stocks. To be honest, none of these stocks were on my radar. I have holdings in TGT , but never looked at stocks like TJX, ROST etc. LB also looks good with a decent yield and growth.
    Need to look at these stocks in more detail.
    Dividend Growth Journey recently posted…Revised Goals – 2014My Profile

    • Hi DGJ,

      Well, in the retail space for the past two or three months every investor has been talking about TGT. I left it out because it seems to be the flavor of the month among all the bloggers. Though I don’t hold any stock in TJX, I know it has been a great long term investment and dividend payer as well. I know many people who have held onto TJX for many, may years. Appreciate the comment.

  3. The retail sector is one of the few market sectors that have reasonable valuations. I have recently taken small initial positions in Bed Bath & Beyond (BBBY) and Staples (SPLS) for the Arbor Asset Allocation Model Portfolio (AAAMP).

    • Hi Ken,

      Interesting choices to go with for the retail sector. I know BBBY has been pretty popular as of late just not too sure about SPLS. I think it’s a chain in trouble looking out long term. Thanks for sharing your holdings.

  4. Long TGT, WMT, COST, and NKE. Also, long Kohl’s (KSS) which seems to be remaking itself, buying back shares, has a PE of 13, and sports a 3% dividend. VFC is priced similar to NKE, and I think either or both have a place in most portfolios with a long term horizon. ROST is favorably mentioned frequently in articles about smaller stocks. A friend of mine left the auto industry to go to L Brands, but unfortunately he isn’t in the marketing dept. 😉

    • Hi KeithX,

      Thanks for sharing your holdings in the retail sector. Personally, I like VFC a lot and has been a long time holding of mine. I happen to agree that VFC is a great long term dividend play and has a spot in most portfolios. Thanks for stopping by.

  5. I literally just got back from TJ Maxx with my wife. She loves that place for bargains! The dividend growth is incredible and I plan to do a little more research on that one. I only own TGT of the ones you mentioned. Thanks for the informational article.

    • Hi AAI,

      I know what you mean about TJX. My wife loves TJ Maxx and we live a few blocks from a Marshalls. As you can imagine, she is a frequent visitor. TJX is one of those quiet great retailers that has a long history of growth and dividend payments. As you know, TGT has been all the talk recently because of their issues but we can’t forget the other retailers that are just as solid. Thanks for your comment.

    • Hi J,

      TGT has been the talk of the town for the past two or three months among the dividend blogs and it seems to be very popular as many see the recent drop a good buying opportunity. Personally, I’m not a real fan of most retail companies as you can see in my portfolio. I just own GWW which is the closest retail outlet I own. But TJX does have a very long great dividend history and should definitely be a consideration. Thanks for your comment.

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