Tag Archives: NYSE:TJX

Strong Dividend Stocks in the Retail Space Exists?!

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.

shopping mall

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.

Read More

How to look for Safe Dividends for Your Income Portfolio

Updated: November 2, 2016

Dividend cuts hurt your portfolio in lost income and likely great unrealized capital losses. There are ways to lower the chance of dividend cuts — by looking for companies that pay safe dividends. Here’s how you can go about doing it.

Does a low payout ratio suggest faster dividend growth?

The payout ratio is the amount of earnings paid out in dividends to shareholders. Just because a company has a low payout ratio does not imply that it will continue growing its dividends.

Businesses in stable industries tend to have higher payout ratios. For example, it is normal for industries like consumer staples, tobacco, and utilities to have relatively higher payout ratios of 60-70%. Examples include Coca-cola (NYSE:KO), Philip Morris (NYSE:PM), and Wisconsin Energy Corporation (NYSE:WEC).

On the other hand, if a company has higher earnings variability (bumpy earnings), it will need a higher cushion for its dividend in preparation for periods when the company’s profitability is challenged.

In other words, such a company will have a lower payout ratio. Thus, the payout ratio is just one of the metrics which helps determine if the dividend is safe and has potential to grow.

pink piggy bank

Photo Credit: kenteegardin from SeniorLiving.org via Compfight cc

A good way to tell if a company is meant to have a low payout ratio or not is to compare its payout ratio to its peers’ payout ratios.

Since they’re in the same industry, they’d have a similar amount of cushion for their dividends.

For instance, Ross Stores (NASDAQ:ROST) and TJX Companies (NYSE:TJX) are both in the cyclical business of apparel retails.

Ross has a payout ratio of 19%, while TJX’s is 25%. If both companies decide to keep their payout ratios where they are, the only way the apparel retailers can grow their dividends is to rely on earnings growth.

So, estimating the earnings growth of a company becomes a good exercise to help determine the safety of a company’s dividend and its growth potential.

I’d argue that in the medium term, Ross has the ability to grow its dividend per share at a faster rate than TJX because the former has a lower payout ratio and is expected to grow its earnings per share at a faster rate.

Of course, a company can choose to grow its dividend at a faster rate than its earnings growth. In this respect, other than with the “help” of earnings growth, the company must raise its payout ratio.

Amgen, Inc. (NASDAQ:AMGN) is one example. Its dividend is 26.5% higher than a year ago, but its earnings growth was “only” 19% in 2015. Read More