The Best Dividend Stocks in the Retail Industry

Choosing retail stocks can be tough. Over the last couple years, we lost several retailers including Sports Authority, Aeropostale, and Radioshack.  While some retailers have lost their steam or even disappeared forever, others have thrived and have given investors impressive returns.

Investors know that retail companies typically won’t give them outrageous returns like other industries, they can be a great way to diversify your portfolio. The PowerShares Dynamic Retail ETF (NYSE: PMR) is up almost 50% in the past five years. Stocks in the industry have the potential to produce decent returns and attractive dividend payouts, too.

Retail stocks can often be subject to many types of news that can cause volatility. These stocks typically report comparable store sales in addition to earnings. Like earnings reports, comparable store sales, or “comps,” are very important for share prices.

Here are a few retail stocks that can be great opportunities for dividend investors.

Gap Inc (NYSE: GPS) is a San Francisco-based retailer that operates several stores and brands under its corporate umbrella which include The Gap, Banana Republic, Old Navy, Athleta and Intermix brands. The company’s comparable store sales in January rose 1%, compared to an 8% decline in the same period in the year prior. The company is expected to report its next quarterly earnings on February 23rd. The Gap is currently trading at 10 times its future earnings.

The stock is down lastly in the last twelve months, but it currently offers a dividend yield of nearly 4%. It has maintained its current dividend payout for two years without an increase, as the company had limited free cash flow.

L Brands Inc (NYSE: LB) is a Ohio-based retailer best known for being the parent company of Victoria’s Secret and Bath & Body Works. Its superior brands have set it apart from other smaller retailers that have tough competition.  Although many retailers of its size have struggled, L Brands offers products that consumers often compare as better than competitors and has decent brand loyalty from its customers.

The stock has been a great performer over the last couple years, but struggled in 2016. Its comparable store sales tumbled in January by 4%, which followed its trend of disappointing results throughout last year. The stock is trading at 15 times its future earnings.

Its share price has taken a hit, but its dividend is a great opportunity for investors. Currently, L Brands offers a dividend yield over 4%. The stock didn’t raise its dividend yet this year, but LB rewarded its shareholders with a $2.00 special dividend last year.

Macy’s Inc (NYSE: M) is an Ohio-based department store retailer that operates Macy’s and Bloomingdale’s. The company has been struggling, and closing a portion of its stores. However, recent reports have suggested that Macy’s may have some potential buyers eyeing it up. This news has pushed its share price upwards on a possible acquisition.

Still, in the last twelve months, the stock is down about 20%. In January, it hit its 52-week low, falling under $30. This may be a buying opportunity for the company, especially if a deal is made. The company has a great dividend yield, too, offering about 4.65%. Despite its struggles, Macy’s has been raising its dividend every year for six years.  The stock is currently trading at 9 times its future earnings estimates.

There’s no doubt that a Macy’s investment is a little bit complicated – with its store closures, alternative strategies, and a potential buyout. However, there is definitely potential for this investment, and the great dividend yield doesn’t hurt, either.

Target Corporation (NYSE: TGT) is a Minneapolis-based discount retailer, and is the second largest discount retailer in the United States behind Wal-Mart. The retailer has been doing a good job expanding, but did fail in its Canadian expansion attempt.

The company had a rocky year in 2016. While the stock jumped in the first quarter, shares plunged after its first quarter and year-over-years earnings results. Target also got itself tangled in a few social issues, too, which caused a massive boycott. In the last twelve months, the stock is down about 5%. Target is currently trading at 12 times its future earnings estimates.

Target has a great dividend history, as it has boosted its payout every year since 1968. Currently, it offers a yield of approximately 3.6%.

CVS Health Corp (NYSE: CVS) is a Rhode Island-based pharmacy and drug store company. The stock has declined about 17% in the same twelve months, as the attention has switched to its rivals Walgreen’s and Rite Aid, and their pending merger deal. The increased competition has forced the company to cut its outlook, which then caused shares to tumble. Shares of CVS trade at 12 times its future earnings estimates.

CVS obtains most of its revenue from its pharmacy segment, but actually sees higher earnings in its retail sales. The company continues to benefit in the sector from its name recognition and reward program. CVS may, however, be impacted by changes in the healthcare sector, proposed by the new administration.

The drug store also has a solid dividend. It currently has a dividend yield of about 2.6% and has been raising its payout every year since 2009.

Kroger Co (NYSE: KR) is an Ohio-based grocery store retailer. The company had solid performance during the first half of 2016, but has recently had sluggish performance. The grocery store business can be a tough business because of its low margins and food price fluctuations.

While the stock is down over the last twelve months, it is up 180% in the past 5 years This compares to S&P 500 performance of 72% in the same time period. It is also notable to mention that Kroger’s competitor Whole Foods Market (NYSE: WFM) actually declined during that time period. Many analysts see this stock has a long-term pick for investors. Shares of Kroger are currently trading at 14 times its future earnings estimates.

Kroger’s dividend is slightly lower than others on this list, as it yields at about 1.45%. However, the stock has great potential and the company has been committed to raising its dividend payout every year.

Walgreens Boots Alliance Inc (NYSE: WBA) is an Illinois-based drug store and pharmacy company. In 2014, Walgreens merged with Alliance Boots, which created Walgreens Boot Alliance. Now, as mentioned prior, Walgreens is attempting to merge with Rite Aid.

The stock had a rocky year in 2016, but is still positive year-over-year. Like many merger deals, regulation fears can cause volatility.  Walgreens has a current dividend yield of about 1.8%. While its yield may not be too exciting, it has been increasing its dividend every year for over 40 years. Shares of Walgreens are currently trading at 15 times its future earnings estimates.

Wal-Mart Stores Inc (NYSE: WMT) is an Arkansas-based discount retailer. The company is the largest discount retailer and also the largest employer in the United States (here’s what that looks like!). In addition to its Wal-Mart stores, the company also owns and operates Sam’s Club.

Wal-Mart has historically be a conservative stock. Investors rarely see the stock surge, but during the 2008/2009 recession, Wal-Mart was the only Dow Stock to come out in the positive. The stock is currently trading at 15 times its future earnings estimates.

The retailer is a favorite among dividend investors. As mentioned above, it’s a conservative stock, but it also has a great dividend yield, at nearly 3%. The stock has been raising its payout every year since 1975. Although the payouts are minimal (usually by about a penny), the company still has committed to increases.

 

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