Those investors searching for yield in a currently yield starved globe may want to take a chance on a few beat-up retail stocks.
Most retailers continued to battle weak store traffic in the second quarter, and Wall Street has reacted harshly to several big-name earnings reports from the space in August. In turn, massive declines in several well-known retail stock prices has pushed up their dividend yields to eye-catching levels.
Stock price declines often equate to rising dividend yields for those companies that offer a dividend, and vice versa.
By eye-catching, we mean yields significantly higher than the paltry 1.6% rate on the 10-year Treasury note. Most experts Yahoo Finance have talked with say the retailers listed below are not at any near-term risk for a dividend cut. Despite their current struggles, these retailers are profitable and have management teams unlikely considering a dividend haircut anytime soon.
All data compliments of Yahoo Finance Premium.
Dividend yield: 6.9%
Dividend payout ratio: 55.6%
The maker of Coach, Kate Spade and Stuart Weitzman items saw its stock blasted by 22% on Thursday following a mixed quarter and tepid outlook. That market reaction brought the one-year decline for Tapestry’s stock to 61%.
Investors locked in on two areas from the latest earnings report.
First, ongoing difficulties in turning around Kate Spade — a brand Tapestry paid a pretty penny to buy in 2017. Tapestry CEO Victor Luis told Yahoo Finance in an interview, however, he does see an inflection point in the Kate Spade business over the next 12 months as his team delivers more consistent, on-trend merchandise.
Secondarily, Tapestry slashed its full-year earnings outlook. The company said it expects low single-digit gains in sales and earnings for the current fiscal year. Back in May, Tapestry envisioned double-digit earnings per share growth for the fiscal year.
Tapestry’s dividend is “quite secure,” Guggenheim Securities analyst Robert Drbul said in a note. Drbul is likely rather correct — Tapestry remains nicely profitable thanks to years of cost-cutting and its core Coach brand continues to perform well from sales and profit perspectives. As another sign of that: Tapestry just signed off on a new $1 billion stock repurchase program.
Dividend yield: 9.3%
Dividend payout ratio: 45.9%
The department store retailer has had a disastrous week.
Macy’s reported second quarter adjusted earnings of 28 cents a share, missing analyst forecasts for 45 cents a share. Earnings plunged from 70 cents a year ago. Same-store sales rose a meager 0.3%. Full-year earnings guidance was slashed to $2.85 to $3.05 a share from $3.05 to $3.25 previously.
Executives had a litany of excuses for the poor showing on earnings day, ranging from ineffective inventory planning to weak international tourism trends at its top stores.
The stock is down about 17% on the week, as investors digested what could be a rough holiday season for the retail icon. Over the last year, the stock is down 55% — that has pushed up Macy’s dividend yield to an almost distressed company level.
But, as far as Macy’s dividend is concerned, most on Wall Street believe it’s safe for now. Macy’s has worked to pay down debt the past two years — meaning no near-term cash crunching maturities loom — and it continues to be profitable amid years of aggressive cost-cutting.
“I think that is a possibility next year should top line and margins further deteriorate, but right now with the cost savings program being implemented I do not expect it,” another source told Yahoo Finance on the outlook for Macy’s dividend.
That doesn’t suggest Macy’s shouldn’t scrap its dividend, however, as Yahoo Finance discussed here.
Dividend yield: 6.1%
Dividend payout ratio: 52.4%
Kohl’s hasn’t even reported its second quarter earnings (the company is scheduled to report on August 20), but the tough-on-the-eye results from Macy’s and Tapestry has walloped the stock. The stock has tanked 9% so far in August. Over the past year, Kohl’s has shed about 40% in value.
Just like rival Macy’s, the move in the stock has pushed up Kohl’s dividend yield. And also like Macy’s, it’s unlikely Kohl’s dividend disappears in the medium-term.
Kohl’s has won high marks on Wall Street for linking up with Amazon to handle the e-commerce giant’s returns in its more than 1,100 stores. The partnership is expected to drive traffic and sales to Kohl’s. Meanwhile, Kohl’s recently partnered with discount gym chain Planet Fitness to open 25,000 square foot gyms at 10 of its stores.
The initiative is also expected to drive store traffic, especially in the lucrative athletic wear department.
And yes, Kohl’s is profitable... and will likely stay that way barring a nasty U.S. recession.