Kohl’s (KSS) increases dividend by 10% & offers a compelling 5.4% yield.

Kohl’s (NYSE:KSS) dividend was increased by 10%.  Its overall yield is 5.57%. The firm started paying a dividend in 2011.

Kohl’s Corporation is a department store operator based in the United States. The large retail company provides national brands, private label, footwear, accessories, home, and beauty products to its diverse customer base. The firm maintains over 1,100 stores in 49 states. The company headquartered in Menomonee Falls, Wisconsin and founded in 1962.

Kohl’s has maintained a three-year growth rate of dividends of 12 percent. Kohl’s currently ranks 1st in dividend yield within the large cap services, department stores category. The quarterly dividend for the March payment will be $0.55 versus the prior year rate of $0.50 per share. Kohl’s is a member of our Top 100 Dividend Stocks.  (see below).

top-100

The dividend will be paid at the new higher rate on March 22, 2017, to shareholders of record at close of business on March 8, 2017. Kohl’s Corp. is currently priced at $37.76. Listed in the table below are the quarterly dividend payments since 2011. 

Date Quarterly Dividend
3/6/2017 0.55
12/5/2016 0.5
9/2/2016 0.5
6/6/2016 0.5
3/7/2016 0.5
12/7/2015 0.45
9/4/2015 0.45
6/8/2015 0.45
3/9/2015 0.45
12/8/2014 0.39
9/8/2014 0.39
6/9/2014 0.39
3/10/2014 0.39
12/9/2013 0.35
9/9/2013 0.35
6/10/2013 0.35
3/11/2013 0.35
12/3/2012 0.32
8/31/2012 0.32
6/4/2012 0.32
3/5/2012 0.32
12/5/2011 0.25
9/2/2011 0.25
6/6/2011 0.25
3/7/2011 0.25

Analysis of Kohls is based upon our five key criteria for the Top 100 list, which include;

Category Value Score
Dividend Yield 5.57% 26
Dividend Growth (3-6 year avg) 13% 165
Forward P/E 11.09 40
S&P Financial Rating BBB- 160
Beta 0.95 125
Total Score 516
% Yield 3 Year Div. Growth Rate 6 Year Div. Growth Rate SPS 2016 P/S Ratio 10 yr P/S Low 10 yr P/S High 5 yr low Yield % 5 yr max Yield %
5.57% 12% 14% 113.35 0.35 0.32 1.00 2.06% 5.57%

Positives;

  • Kohl’s dividend yield is above that of the S&P 500 Index.
  • Kohl’s has paid out a dividend consecutively for the past 6 years.
  • Kohl’s maintains an investment grade rating of BBB-.
  • Kohl’s has maintained a three-year growth rate of dividends of 12 percent.
  • Kohl’s is trading at the bottom of its ten-year average price/sales (P/S) ratio.
  • Kohl’s current dividend yield (5.57%) is at the top of its five-year average historical dividend yield.

Latest Earnings & Overall Analysis:

Kohl’s issued its earnings data on February 23rd. The company reported $1.44 EPS for the Q4 quarter, topping the consensus estimate of $1.32 by $0.12. Revenue came in at $6.2 billion, which was in line with most analyst estimates. This was a  2.8% from the 2015 results, demonstrating Kohl’s is dealing with a very challenging sales environment and weaker comparable store sales (or comps).  In total, for fiscal 2016 earnings were $3.76 per share, a fall of 6% from the previous year.

Gross margin rose to 33.4% in Q4, a slight increase from Q3. But higher administrative and selling costs hit operating margins, which fell by nearly a percent to  7.6%.   The firm maintains a solid balance sheet and investment grade credit rating. The firm has just over $1 billion in cash versus $597 million in the last quarter. The company has nearly $3 billion in net debt. Despite the sales results,  Kohl’s raised its quarterly cash dividend by 10 percent, much higher than expected given weak trends.

Kohl’s expansion plans were put on hold in 2016, as it only opened up 9 new stores and 12 outlets. But it shut down 19 stores last year that were unprofitable. The firm’s Greatness Agenda plan was put in place three years ago to improve sales trends and increase overall transactions per customer visit.  Although the firm did well in 2015, the overall retail environment with stiff competition from online retailers has had a major impact. In fact, comparable sales actually declined in each of the four quarters last year.

The share of Kohl’s stock has fallen from a high of $79 back in April 2015 to under $40 a share today. Thus Kohl’s has joined other leading retailers like Macy’s, Target, and The Gap in a secular decline for brick-and-mortar retailing.   Despite all the negative headlines and results, management has projected earnings per share in the range of $3.50−$3.80 per share for next year while sales should be flat.

2016 2015 2014 2013 2012
Earnings per Share 3.76 4.01 4.24 4.05 4.17
Annual Dividend 2 1.8 1.56 1.4 1.28
Payout Ratio 53.80% 45.02% 36.79% 34.57% 30.70%

Over the past three years, Kohl’s has had a very difficult period. The firm has had a 1% average annual decline in retail sales for nearly four years. The industry is going through a massive adjustment with firms like Sears on the brink of bankruptcy.  However, we think that Kohl’s is a survivor due to its solid management team and large, loyal customer base. Its overall footprint is a bit large and might be reduced, but this will help profitability. The firm has a strong private-label business which is nearly half of all sales. Below is the expected earnings per share from our team with dividend payout. At a much higher 58%, dividend increases in the future should be in the 4-7% range. But this is okay considering that its 5% plus yield is higher than many utility companies. The firm maintains a solid BBB- credit rating and has stable cash flow. We think the firm can ride out the storm better than most other large retailing firms.

Earnings per Share 2017 (projected) 3.75
Dividend 2.2
Payout Ratio 58.67%
Due to its high relative dividend, investment grade credit rating, and strong dividend growth, Kohl’s does qualify as one of our Top 100 Dividend StocksPlease subscribe to our monthly premium newsletter to find out more about which stocks are listed in our model portfolio.  

Kohl’s Corp. Dividend Yield Historical Chart (Click to enlarge)

Chart Explanation:  Dividend growth stocks may be viewed undervalued when the current yield is above historical readings for the past 5 years. 

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