If you’ve been following Sears Holdings Corp. (NASDAQ:SHLD) and Macy’s Inc.’s (NYSE:M), it may be difficult to believe that strong companies in the retail space still exist.
Sears had been posting losses since 2012. And Macy’s fundamentals have been deteriorating since 2015; its long-term growth is estimated to be about 2% per year, which would be hardly keeping pace with inflation. One should, of course, avoid investing in these types of retailers.
However, it’s not all bad in the retail space. Here are a few quality stocks whose fundamentals have remained strong as they face the challenges in the industry.
Simon Property Offers a ~4.4% Yield
Simon Property Group Inc. (NYSE:SPG) is a global leader, which owns premier shopping, dining, entertainment and mixed-use destinations with properties across North America, Europe, and Asia.
In the second quarter, Simon Property slightly increased its guidance for the year (due to the elimination of some debt), and now estimates to generate $11.14 to $11.22 funds from operations per share, which would represent a growth of ~7% compared to 2016.
As well, management also increased its quarterly dividend to $1.80 per share, which represents a boost of nearly 9.1% from a year ago. Simon Property has hiked its dividend payout every year since 2011.
At ~$164.50 per share, Simon Property is reasonably priced at a multiple of ~15 (and some say even undervalued because the quality shares have historically commanded a premium multiple of ~18). Here the best three places to look for safe dividend income.
TJX Offers a ~1.8% Yield and Above-Average Growth
TJX Companies Inc. (NYSE:TJX) is one of the largest off-price apparel and home fashions retailer in the United States and has global operations. It has over 3,800 stores in nine countries and three e-commerce websites.
TJX managed to squeeze out earnings per share (“EPS”) growth even during the last two recessions! Moreover, its long-term price chart gives confidence in the durability of the business.
Source: Google Finance
TJX currently generates ~77% of its sales in the U.S, and it believes there’s room to expand its store count in the country. And of course, it can also grow globally.
So, shareholders can expect TJX to continue increasing its dividend, which it has done for 21 consecutive years. Analysts expect the company to increase its EPS by 10.8-12.6% in the long-term. With the shares trading at ~$70.20 per share, a multiple of 18.9, the shares maybe slightly discounted.
Here’s a more detailed article on TJX.
Costco Shares Are Still Staying Up There
Costco Wholesale Corporation (NASDAQ:COST) shares have been on an uptrend since 2009. Its membership model has its customers coming back time after time because they paid for the membership and want to make it worthwhile. The more they shop, the more worthwhile the fees paid.
Costco shares aren’t cheap. In fact, they are closer to being expensive. At ~$156.50 per share, they trade at a multiple of ~27, while analysts estimate the shares will grow its EPS by ~10.2% in the long run. However, Costco tends to command a premium multiple for its quality.
Warren Buffett believes “it’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” And Costco is a wonderful company at a fair price.
Investors who want to stick with quality and don’t mind paying up for the shares can consider buying partial positions on dips, such as when retail stocks dipped (including Costco) from the news of Amazon.com, Inc. (NASDAQ:AMZN) buying Whole Foods.
Costco only offers a ~1.3% yield. So, you’ll be buying its quality and above-average stability and growth. The company has increased its dividend for 14 consecutive years.
Simon Property, TJX, and Costco are quality companies, which have staying power. Simon Property is the best value of the three and offers a +4% yield, and it can grow its dividend by ~7% per year for the next few years.
TJX is slightly undervalued and Costco is fairly valued for its quality, but both should be able to hike their dividends by ~10% per year for the next few years.
If you like what you've just read, consider subscribing via the "Subscribe Here" form at the top right so that you will receive an email notification when I publish a new article.Disclosure: At the time of writing, I own shares of SPG, TJX, COST, and AMZN.
Disclaimer: I am not a certified financial advisor. This article is for educational purposes, so consult a financial advisor and or tax professional if necessary before making any investment decisions.
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