Investing In Infant’s And Children’s Clothing Dividend Stocks
With baby DivHut being born last March I seem to have taken an interest in featuring his own dividend growth portfolio along with other baby related posts this month. Last week I wrote a blog post describing various dividend paying baby formula stocks that exist and now I’d like to do an overview, from a dividend perspective of course, of the $9 billion infant’s and children’s clothing industry in the U.S. With many major players in the space like Toys ‘R Us and Gymboree, the sector is expected to grow to $173.6 billion by 2017 globally. By any measure, that’s a huge market. With that being said, let’s take a look at some of the dividend paying companies that operate within this sector.
First up is a name that is present in virtually all homes with infants and toddlers, Carter’s, Inc. (CRI). Makers of bodysuits, pants, dresses, receiving blankets, caps, bibs, booties and much, much more sold under its namesake as well as familiar brands such as Precious Firsts, OshKosh and others, it’s a name that is very familiar with any parent with young children. Currently yielding a relatively low 1.30% with an equally low payout ratio of 26.1%, CRI offers a safe dividend with room for future growth based on current cash flow. While it doesn’t have a long history paying dividends it has been growing its distribution by double digits averaging an impressive 15.8% over the last couple of years. From a simple PE perspective, CRI has a multiple of 22.4 which is in line with its five year average PE sitting at 22.5. Forward PE looks more enticing at 17.9.
Next up is children’s specialty apparel retailer, The Children’s Place, Inc. (PLCE). Operating well over 1,000 stores across North America, PLCE sells merchandise under The Children’s Place, Place, and Baby Place brand names. Perhaps a PLCE store is in your neighborhood? With a low current yield of just 1.00% and a low payout ratio of 19.8%, PLCE like CRI, sports a safe dividend based on current cash flow with room for future growth. With a short dividend distribution history beginning in 2014, it’s difficult to estimate dividend growth rates going forward with any accuracy though I would venture to guess double digit increases going forward. Again, it’s just a guess. Looking at its PE, the stock sports a multiple of 28.9 well above its five year average of 19.8. Forward PE comes back down to earth at 19.4.
Unlike the previous two companies mentioned, this next apparel stock has an extensive history of paying dividends that goes back to the Regan administration, The Gap, Inc. (GPS). With a strong global brand and footprint that includes over 3,700 stores for its namesake as well as Banana Republic, Old Navy and Athleta stores, GPS also has a strong foothold in the infant, toddler and children’s market with its babyGap and Gap KIDS, stores and clothing lines. The stock offers a generous current yield of 3.20% with a moderately low payout ratio of 41.4% based on current cash flow. Again, we find another children’s clothing stock that sports a safe dividend with room for future growth. If you are looking for strong long term dividend growth rates then look no further than GPS which has an impressive ten year annualized dividend growth rate of 16.24%. From a basic valuation perspective GPS sports a current PE of 12.9 which is slightly lower than its five year average of 14.2. Forward PE looks slightly better at 12.8. Of course, getting a five star rating on Morningstar doesn’t hurt either and may point to some good current relative value in the stock.
Another major retailer of baby and children’s clothes, among other merchandise and apparel, is Dillard’s Inc. (DDS). This classic department store retailer currently offers a tiny 0.34% yield with an equally microscopic payout ratio of only 4.0%. Based on its current cash flow and payout, the dividend appears to be very safe. Though having a pretty extensive history of dividend distributions the dividend growth rate has been on the low end of the spectrum with a ten year annualized growth rate of just 4.97%. With a current PE of 11.8 the stock currently trades at slightly less than its five year average PE of 12.4. Even though DDS sports a safe dividend and decent value I can understand the difficulty in getting excited about that tiny yield.
Finally, there’s Kohl’s Corp. (KSS) which operates 1,164 department stores in 49 states selling everything form housewares and beauty products to mens, womens and children’s clothing and accessories. Of all the names mentioned, KSS might look the most enticing with its juicy yield of 4.35% and moderate payout ratio of 48.5%. With a relatively short dividend distribution history, KSS has started to consistently raise its dividend for the last five years with an impressive three year annualized dividend growth rate of 12.00%. From a valuation perspective, KSS is currently trading around its five year average PE of 13.0. Forward PE looks slightly better at 10.9.
Are any of the names mentioned above in your dividend portfolio? Have you ever considered investing in this globally growing sector? Please let me know below.
Disclosure: Long NONE