4 High-Yield Retailers With Great Upside

by: Matthew Frankel

As I'm sitting here on Christmas Eve, watching everyone around me run around to do last-minute shopping, my perpetually stock-oriented brain got to thinking about retail stocks. Now, when it comes to retail, there is a lot of risk involved, so I try to find those companies not only with good upside potential, but that will pay me a decent yield while I "wait and see."

Upon further investigation, I came up with a list of four companies that fit both criteria mentioned above. In no particular order, my favorites are:

  1. United Online (NASDAQ:UNTD) - This company, through subsidiaries, provides a variety of consumer products and services under brand names such as FTD, Interflora, Memory Lane, Classmates, StayFriends, MyPoints, and NetZero. The revenue leader, by far, is the FTD brand, accounting for approximately 65% of the company's revenues. The EPS consensus is for $0.66 per share for FY 2012 (to be reported in late February), meaning that the stock is currently trading at only 8.8 times TTM earnings. Additionally, the company is paying a dividend yield of 6.85%, which it has maintained at the current level ($0.40) since 2008. This company clearly has enough earnings to continue paying the dividend, if not to raise it in the future. This may be why analysts currently have a 1-year consensus target of $7.41, or 28% upside over current levels.
  2. Delhaize Group (DEG) - Although most of us have never heard of this Belgian-based grocery store operator, some of its subsidiary brands are household names to most Americans. The company operates supermarkets in Belgium, the US, Greece, and several other countries, with its U.S. brands including Food Lion, Bottom Dollar Food, Harveys, Sweetbay, Bloom and Hannaford. Expected to report FY 2012 earnings during the first week of March of $5.73 per share, this stock is trading at only 6.9 times earnings as of this writing. Additionally, the company pays a very healthy dividend of $2.17 per year, or a 5.46% yield. Analysts have an average target price of $62.98 on this company, which would represent a whopping 58.4% gain over current levels.
  3. Best Buy (NYSE:BBY) - Unless you never check any market news site, you've heard of this one. Best Buy is a leading retailer of consumer electronics, operating approximately 4,300 stores in North America, China, and Europe. Currently paying 5.83%, this stock has a unique ace in the hole. Founder Richard Schulze has indicated his intention to make a takeover offer for those shares of the company he does not already own. While I believe that the company will eventually be sold at a price of around $15 per share, the stock is trading at only 4.7 times fiscal year 2012's expected earnings, which will be reported in late February. This is a very attractively valued high-yielder, with the added bonus of a prospective buyout.
  4. Darden Restaurants, Inc. (NYSE:DRI) - One of the largest publicly-traded restaurant companies in the world, Darden operates 1,994 restaurants in the United States and Canada. Brands include Red Lobster, Olive Garden, LongHorn Steakhouse, and several smaller brand names. Darden is expected to have the best earnings growth of the four companies profiled here, expected to report FY 2013 earnings of $3.81 per share, when the company's fiscal year ends in May, and those are expected to grow to $4.42 in 2014. So, the company is trading at 11.7 times current fiscal year's earnings and 10.1 times forward earnings. In fact, analysts are expecting Darden to grow at a 10% annual rate for the next three years, making those earnings multiples even more attractive. In the meantime, investors are paid a nice 4.43% yield, which has been raised consistently over the last decade.

All of these are worth a look for a dividend/growth portfolio, and all look very attractively valued at the present time.

Happy Holidays to All!

Disclosure: I am long BBY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.