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
20 thoughts on “Dressing Up Your Dividend Portfolio”
As always, I love the theme articles. KSS might be the final or one of the final stocks I add to my Loyal3 account. As you stated it looks juicy. I do have some concern because it is a department store, but its appeal to a more bargain side might keep them in the hunt.
I own some shares of GPS. My wife and I like their products versus competitors; the fit of their jeans and shirts (which are also non-iron!). They have been in a slump lately, but I think it is just a slump. This is a stock I will continue to pick up with the low multiples. Still as an owner, I plan on making it a small position, definitely not the core of the portfolio.
Thanks again for the article,
Dividend Gremlin recently posted…Getting a Second Job
I have no interest in any department store stocks out there. In general, I’m not hot on the retail sector even though TGT and WMT are very popular among the dividend bloggers. Even with that KSS attractive yield I’d rather buy a lower yielding “safer” consumer staple stock and the like. Glad you enjoyed the article. Thank you for stopping by and commenting.
Thanks for the post DivHut. I am hesistant to invest in the bricks/mortar retail space, so we don’t own this group currently. The retail industry is in a constant state of flux, in addition to high fixed costs it also has to deal with a fickle consumer. I imagine that the kids/baby group would be more resilient, but it’s still tough. Plus, kids grow so quickly……..
I hope you three have a great weekend!
Income Surfer recently posted…Two Tips For New Investors
As I just mentioned to DG above, I’m not keen on the brick and mortar retail sector either which is why I don’t own any in my portfolio. Even though parents will always spend on their kids, as you stated, it’s a tough business to be in. CRI might be a little more insulated as they produce the product to be sold in retail outlets. Thank you for commenting and I hope you enjoy your weekend too and your trip too.
Baby centric investing is an interesting theme. Parent will pay for junior, that is sure. I’m a little hesitant to go all in on retailers though.
Parents will always pay something for junior, whether it’s designer trendy outfits or bargain basement second hand items, it’s a sector that is fairly resilient during tough economic times. Even with that attribute, I’m with you in not being so excited about buying into a retail sector stock which is why I don’t hold any of the names mentioned. As always, I appreciate your comment.
Thanks for sharing DivHut! I like this type of post, as it introduces some lesser known DGI stocks. I’ll be in my core stocks building for a good while, so I don’t anticipate picking up anything outside of those at the moment. However, it’s good to have some new options to analyze. Have a great weekend!
Special Agent Dividend recently posted…Another Small Milestone
I enjoy writing these type of sector based posts as it tends to introduce my readers as well as myself to names that I might not ever consider nor that may come up in screens. I also aim to show that finding dividend stocks is not difficult as we are literally surrounded by hundreds and hundreds of dividend payers every single day. Stick with your core. I totally get it. Enjoy the weekend too. Thank you for commenting.
You have an interesting angle here. A lot of parents only want the very very best for their kids. They go after the most famous and trendy brands, no matter what the price. Looks like a good starting point for finding stock.
As parents, we go less for designer cloths and look for decent cloths at an acceptable price. On safety itmes, I do tned to buy the most known brands and go for the top items they have.
amber tree recently posted…how to seize an investment opportunity
Your comment highlights the resilient nature of this sector as parents tend to spend on their children during good and bad economic environments. Sure, parents may not always buy into the most expensive items or latest trends, but they will still spend on their children no matter what. Thank you for sharing your thoughts.
Since my wife and I will be welcoming a child in July I have to say I’ve been a bit overwhelmed by everything you’re “supposed” to get. And we haven’t even touched on clothing at all since we won’t be finding out if it’s a boy or a girl until it gets here. I guess it probably wouldn’t hurt to boost up our retail exposure in Target either.
JC @ Passive-Income-Pursuit recently posted…Dividend Growth Investing at Work – 38 Years of Dividend Growth
Don’t fall into the “supposed” to get trap. We sure didn’t. I can honestly say that most baby items sold today are non-essential. Stick with the basics and forget about the newest trend, “must have” organic anything. Babies, need their parents, love, warmth, attention, food, clothes and shelter. Put them in a second hand crib for $50 instead of a new one for $500. Get a basic stroller for $100 or less instead of the Mercedes-Benz Luxury Baby Stroller Concept. You get my point. Besides, most baby items are good for a time period measured in weeks or months so why invest a bundle for such limited use. Look forward to reading your future good news. Thank you for commenting.
I completely agree. I’ve been trying to get my wife on board by having her ask one of her friends, she had a baby last year, what stuff she wishes she had more of or uses multiple times on a daily basis and what things she received/bought that really turned out to not be all that useful even though they were on the “supposed to have” list. Essentially the essentials.
If you have any suggestions/recommendations for what stuff you felt was definitely a must have/need more and what stuff you felt was just kind of taking up space feel free to pass them along.
It’s a bit hard since we lost our son, Luke, so I have a feeling she’s going to want to do a bit of overkill. Me too but I’m also naturally the more “economical/efficient/simpler” person of the two of us.
JC @ Passive-Income-Pursuit recently posted…Dividend Growth Investing at Work – 38 Years of Dividend Growth
I can see where your wife is coming from after your loss but I’m sure there is some common ground to be found between overkill and economical. We got a lot, and I mean a lot, like garbage bags full of baby clothes from friends and family with children six months to almost two years older than baby DivHut. We were lucky to receive clothes, not measured by items rather by pounds and it was a good thing as many items were worn just a few times before they became too small. My wife and I told our immediate family not to spend money on clothes. If they wanted to buy something during those early days, weeks and months, we would be happy to accept diapers, wipes and formula. You will go through a lot of those items and will always need a supply. We got hand me down bassinets and even toys. From our experience we just stuck to the essentials and bought no, what I like to call, baby accessories like the Boppy, baby wipe warmer, anything from 4moms, etc. We fed him in our arms, bathed him in a standard baby tub, fed him through regular bottles, bought ordinary Pampers (no organic nonsense), wiped his butt with regular baby wipes out of the package and not “warmed” and thank God one year has passed and all is well. We have one stroller, the Graco Click Connect 30 which is a stroller and car seat and base in one. When he outgrows the car seat portion which clicks into the car and stroller he can use the stroller without the car seat. In other words, we plan to use this one stroller/car seat combo for about two years if not longer. I have friends that own multiple strollers for different occasions. To me that’s a waste. Another thing I wold stay away from are all the “development enhancers.” Things like the Bumbo seat or the sit-to-stand learning walker for example. We got both as hand me downs but our guy never used either. Nature is amazing and watching the development of your child will amaze you. In time, our guy learned to sit up on his own, learned to stand on his own and now take his first steps on his own. These are the types of items that are marketed to new parents as “must haves” because you are an evil/bad parent for not assisting the development of your child. Crap. Love, food, clothes, shelter and with proper development your little one will be doing all these things as nature intended. What I always tell Mrs. DivHut is this… think about all those babies born in any third world country. Just the absolute basics are given to the child and assuming good nutrition, learn to roll, crawl and walk on their own without a Bumbo seat, Bobby, baby wipe warmer, etc. In fact one sheet or cloth doubles as a wrap, blanket, baby carrier, bed and more. Here in the U.S. we might have five different products marketed to us each, when really one sheet or cloth might do it all. You get my point. I guess I can sum up what I perceived to be two nonessential baby categories, anything in the “baby accessories” and “development enhancers” classification. I guess you can decide for yourself what items would go into those groups and make your purchases accordingly. Hope this helps.
Again, love the article series. I am with IncomeSurfer in the sense that I am avoid brick and mortar retail spaces right now (Except for Target. That’s one I would invest in at the right place). But places like Carter’s and Kohls are not going anywhere any time soon.
I will say this, I was pretty surprised and impressed by Gap. I forgot they have as many great brands as I do. Based on your analysis above, the metrics look great as well. Time to dig deeper. Maybe a good stock analysis topic one day.
Take care and thanks again for sharing!
Dividend Diplomats recently posted…Why I Haven’t Purchased a Stock in 30 Days
I’m happy you are enjoying my sector specific dividend posts. For me, it’s a fun way to break down a particular economic segment and see what dividend payers exist there. As I have commented to others, I’m with you in not liking the brick and mortar retail sector which is why I don’t own any in my portfolio. Not even TGT or WMT that many DGI bloggers like. GPS looks to be quite strong and I’m a little surprised it is not found in more portfolios online. Just a casual sifting through baby DivHut’s clothes I find quite a few CRI items. They aren’t going away any time soon. Would like to see a deeper GPS analysis. We may generate some interest in this stock. Thanks for commenting.
I like reading these articles, as you often mention companies that I’m not aware of and it’s always nice to learn something new.
As others have mentioned, I can’t see bricks and mortar having a great future (forever, not just temporarily). If there was an on-line baby clothes store then that would be intriguing. Australia is a bit behind with on-line stores, most of the baby clothes are sold by department stores (like Target, K Mart). There is one company, called Baby Bunting (ASX:BBN) that recently listed that sells everything (prams, clothes, toys, cradles etc).
Dividendsdownunder recently posted…Shareholding Review: Japara (ASX:JHC)
Happy to hear that you enjoy reading these posts. I’m with you and others that have commented about the future prospects of retail. Personally, I do not own any retail stocks, even the popular names like TGT and WMT because I do not like the sector long term. I think that some of these brands can exist without a brick and mortar presence as long as their brand remains strong and can be sold online or through other retailers. CRI comes to mind in that respect. Thanks for introducing me to BBN. I guess we both can introduce new names to one another. Thanks for commenting.
I enjoy these themed posts you create. Children’s clothing is one of those purchases that a lot of people don’t skimp on. By this I mean, some people spend top dollar to make their kids look stylish. At least on their first kid 🙂
Gotta love business where many customers are not cost conscious.
Investment Hunting recently posted…Stock Buy – Royal Bank of Canada
Happy to hear you enjoy these types of posts. I mentioned in another comment that the baby/children’s clothing market is pretty resilient during bad economic times. As you stated, parents tend to not stop spending on staples such as clothes for their kids no matter what. As always, I appreciate your comment.